Ruhr Economic Papers

Ruhr Economic Papers #919

Understanding Cognitive Decline in Older Ages: The Role Of Health Shocks

by Valentin Schiele and Hendrik Schmitz

RWI, 11/2021, 43 S./p., 8 Euro, ISBN 978-3-96973-065-2 DOI: 10.4419/96973065

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Abstract

Individual cognitive functioning declines over time. We seek to understand how adverse physical health
shocks in older ages contribute to this development. By use of event-study methods and data from the
USA, England and several countries in Continental Europe we find evidence that health shocks lead to
an immediate and persistent decline in cognitive functioning. This robust finding holds in all regions
representing different health insurance systems and seems to be independent of underlying individual
demographic characteristics such as sex and age. We also ask whether variables that are susceptible to
policy action can reduce the negative consequences of a health shock. Our results suggest that neither
compulsory education nor retirement regulations moderate the effects, thus emphasizing the importance
of maintaining good physical health in old age for cognitive functioning.

JEL-Classification: J24, J14, I1, I12

Keywords: Cognitive decline; health shocks; retirement; education; event study

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