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Socio-economic status and health status are positively related. However, one must be careful in considering the causal impact of income on health, since the reverse causality might be at play. Since income inequalities are an important factor in health inequality, policy makers who aim at improving general health or narrowing health inequalities using public policies, need to understand the sources and the true direction of the causality between income and health. We thus implement an original method in order to assess the Granger causality of income on the self-perceived health status. Using the Survey of Health, Aging and Retirement in Europe (SHARE), we exploit the panel dimension of the data. We use a microsimulation method to tackle the endogeneity issues of the factors which might influence the relationship between health and income, by incorporating lagged values of the variables of interest. Once these other factors are controlled, we then apply an instrumental variables method, as well as exogenous income shocks, to solve the income endogeneity issues. We find evidence of a strong positive and significant effect of income on self-assessed health, implying the Granger causality of income on health. Thus, public policies, such as redistribution, are efficient to reduce income-related health inequalities.
