Abstract: We develop a model of perpetual youth with health investment and upward-looking social aspirations. Individuals value their consumption relative to an aspiration level that differs across the distribution. Health capital produced from time investment and health expenditure positively affects the survival rate. We show that aspirations motivate individuals to supply more labor and earn more income but worsen income and consumption inequality. By diverting resources away from health production, they also worsen mortality for all, more so for the poor. Despite a strong negative effect of relative deprivation on personal health operating independently of the income-health gradient, inequality has a weak effect on overall life expectancy. We discuss why the latter may be weakening over time. These results explain the mixed evidence on health and inequality in the advanced economies and cautions against the use of aspirations as a policy tool in developing economies.

Paper can be found here.