Esperanza Vera-Toscano, Melbourne Institute - Assessing the impact of fuel poverty on health: Evidence from HILDA, the Australian household longitudinal survey

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Title: Assessing the impact of fuel poverty on health: Evidence from HILDA, the Australian household longitudinal survey

Abstract: Household Energy prices have risen significantly across Australia since 2007 (76% for electricity and 53% for gas). Moreover, research shows that low income households spend more of their income on fuel than those on high incomes (Azpitarte et al., 2015) and 60.4 percent of households in fuel poverty (heating inability) include at least one person with a long-term health condition or disability. The aim of this paper is to assess the causal relationship between fuel poverty and poor health. We assume that the ability to afford to and heat one’s home to an appropriate level can be seen as an input into the health production function as in the Grossman model. Thus, fuel poverty will lead to a decline in health as individuals cannot top up their health stock above their depreciation rate. Using the Household, Income and Labour Dynamics of Australia Survey (HILDA), we apply a standard microeconomic approach to dynamic panel data to estimate the effect fuel poverty has on the health status of adults over a 13-year period in Australia. We address the dynamic structure of individuals’ health, the initial condition of not being able to observe respondent’s health across the life course and the endogeneity of fuel poverty as fuel poverty is likely to be correlated with unobserved factors that we cannot control for such as quality of housing and individuals optimal housing temperature using such a system-GMM estimator for dynamic panel data. This model used the lagged levels and differences of the endogenous explanatory variables such as fuel poverty as well as lagged individuals’ health, as instruments, while controlling for a wide range of socio-economic characteristics and removing omitted variable bias from unobserved time constant factors. Our preliminary findings suggest that there is a direct effect of fuel poverty on individual’s general health after controlling for other socio-economic determinants. This means that supporting individuals through subsidies to promote better fuel efficiency or help with the costs of fuel are likely to also reduce health care costs.

Presenter: Esperanza Vera-Toscano, Melbourne Institute

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