The Effect of Wealth and Income on Depression across Europe: Evidence Based on Instrumental Variable Probit Analyses

Dimitrios Kourouklis, Frankfurt School of Finance and Management
Cleon Tsimbos, University of Piraeus
Georgia Verropoulou, University of Piraeus

This paper examines the impact of wealth and income on the likelihood of depression across different European regions and age subgroups. To address possible effects, we use data from wave 6 of the Survey of Health, Ageing and Retirement in Europe (SHARE) and, based on 46634 observations, we construct probit and instrumental variable probit models, in which depression is measured by a binary indicator, constructed using the EURO-D scale. Instrumental variable probit estimations are used to manage potential endogeneity existing because of the wealth and income. Hence, we use the variation in the interest from bank accounts and dividends as an instrument. The results show that an increase of 100,000 euros in household wealth in Eastern and Southern Europe reduces the likelihood of depression by 32.3% and 16.0% respectively; by contrast, the decrease in Northern Europe is more modest, 6.08%. The respective estimates regarding income exhibit similar patterns though a greater magnitude of the relative effect. More specifically, an increase of 10,000 euros is associated with a reduction in the likelihood of depression of 74.2% in Eastern Europe, of 60.9% in Southern and of 18.5% in Northern Europe. Our findings suggest that the effect of income is stronger compared to wealth; it would seem that liquidity is more important among Europeans aged 50 or higher than assets. Further, relative effects differentiate considerably across European regions.

Presented in Session 6: Depression and Quality of Life