Mental health, work incapacity and tax contributions: an analysis of the British Household Panel Survey **WORK IN PROGRESS: PLEASE DO NOT CITE OR CIRCULATE WITHOUT PERMISSION**

Publication type

Conference Paper


BHPS-2009 Conference: the 2009 British Household Panel Survey Research Conference, 9-11 July 2009, Colchester, UK


Publication date

June 1, 2009


The Government has embarked on a programme to increase the availability of
psychological therapies. This followed high-profile reports on the economics of such a
programme claiming that the programme would “cost the Exchequer nothing”. In part,
these analyses relied on two statistics: the proportion of Incapacity Benefit (IB)
claimants diagnosed with mental and behavioural disorders; and estimates of the costs
to the Exchequer of periods on IB. These are cross-sectional associations that have been
used to support a case for intervention and constitute forms of cost-of-illness and human
capital arguments. We subject these two statistics to more rigorous longitudinal analysis
using nationally representative data from the first seventeen waves (1991-2007) of the
British Household Panel Survey. The panel structure of the survey enables us to model
the effect of depression on the probability of being on IB whilst controlling for various
sources of endogeneity that bias cross sectional inference. The detailed income and
benefits questions allow us to derive and analyse an individual-level proxy measure of
‘contributions to the Exchequer’. In addition, we can control for covariates and
unobservable heterogeneity in our estimations. Our results reveal that simple estimates
of the effects of depression on IB claims and on contributions to the Exchequer are
confounded substantially by observable covariates and unobservable heterogeneity. We
also find the effect of depression on IB claims is only a partial assessment of the impact
of depression on Exchequer contributions.






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