Working Paper: NBER ID: w12686
Authors: Li Gan; Lixin Colin Xu; Yang Yao
Abstract: Using a sample of households in 48 Chinese villages for the period 1986-2002, this paper studies the dynamic effects of major health shocks on household income and the role played by village elections in mitigating these effects. Our results show that in the first 15 years after a shock, a shock-hit household on average falls short of its normal income trajectory by 11.8% and its recovery would take 19 years. Based on the premise that shock-hit families impose negative externalities on richer families by borrowing from them, our political economy model predicts that the outcome of village elections would differ from that of a standard median voter model in that the elected village leaders tend to adopt pro-poor policies. Our empirical study finds that villages are more likely to establish a healthcare plan after the election is introduced. In addition, village elections reduce the probability of a household to borrow by 16.7% when one of its working adults is seriously sick. As a result, they reduce more than half of the negative effect of a health shock on household income.
Keywords: Health shocks; Village governance; Farmers income
JEL Codes: I12; O15; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Health shocks (I12) | Household income (D19) |
| Health shocks (I12) | Borrowing needs of poorer families (G51) |
| Village elections (K16) | Healthcare plans establishment (I18) |
| Village elections (K16) | Probability of households needing to borrow (G51) |
| Health shocks (I12) | Recovery period for households (D10) |
| Village elections (K16) | Mitigation of negative impact of health shocks on income (G52) |