Spillovers from health insurance to the US underground economy

Abstract

Employing recent data on the prevalence of the underground economy across states in the United States, this article uniquely studies the nexus between health insurance coverage and the underground economy. We find a positive effect of health insurance coverage on the spread of the underground sector. Upon disaggregation, while private health coverage promotes the underground sector, government health insurance has the opposite effect.

Keywords:

• underground economy
• health insurance
• government
• private

JEL Classification:

• H75
• I13
• K42

Acknowledgement

Comments by Jim Jones are appreciated.

Notes

¹ The underground or shadow economy includes all economic activity that is not recorded or reported in official output or income measures.

² For a broader discussion related to incentives to purchase insurance and related price sensitivity, see Blumberg et al. (2001), Cutler and Zeckhauser (2000) and Nyman (1999).

³ However, MINwage is statistically significant only with random effects estimation.