Essays on Applied Welfare Economics

This thesis presents three chapters in applied welfare economics. What links all of them is that they point towards the individuals' well-being under different perspectives, and offer insights on potentially vulnerable groups of individuals that experience welfare losses and need improvement in policies to support them. The first and the second chapters provide a complementary analysis of the retirement role on individual well-being, which is observed firstly as individual subjective health status, and secondly, as subjective well-being, namely as an indicator of life satisfaction and an indicator of quality of life. The third chapter aims at analysing the association of energy poverty on the individuals' well-being, clearly it differs to the first two chapters in focus, methods and policy implications. The vulnerable groups we consider are energy poor and retirees. Energy poor are increasing in European countries and one of the main challenges is to be able to target them, given the multidimensional composition of the phenomenon. The growth of the elderly share in the population is an undeniable objective fact that brings out some concerns. In fact, it contribute to add financial burden to welfare states and worries to policymakers who aim at improving the financial stability of healthcare systems while preserving both the welfare and the well-being of older workers and retirees. The first chapter deals with the retirement impact on general, mental, and cognitive health. Retirement may worsen the individuals' health status when they experience, for instance, a reduction in intellectual or physical daily activities. At the same time, retirement might discourage investment in health by inducing negatively changes in health-related behaviours. Thus, it may affect health status by a direct effect, and by an indirect effect running through health-related behaviours. By using longitudinal SHARE data, and exploiting the mediation analysis in an instrumental variable framework, we built on a model for health and retirement to unpack this causal chain. We also model retirement as a two-stage process, namely, we consider both the status of being retired and the time spent into retirement. In the second chapter, we turn the attention to a broader definition of individual well-being, and we focus on the impact of retirement on life satisfaction and quality of life. The individual well-being consists of several domains, which people are able to separately or overall evaluate. As an example, exiting the labour market may be beneficial for well-being due to the increase in leisure time, but at the same time, it can be detrimental because of the drop in health status. Thus, retirement may impact subjective well-being in both a positive or negative way, and it is likely that the transition into retirement might adjust in time. By using longitudinal SHARE data, we model the relationship of retirement and well-being in an instrumental variable framework, which accounts for potential endogeneity arising for reverse causality of retirement and subjective well-being, and unobserved individual heterogeneity. In the third chapter, we investigate the relationship between energy poverty and life satisfaction. After constructing a multidimensional energy poverty index exploiting both subjective and objective indicators, we evaluate its effect on subjective well-being by using ITSILC cross-sectional data. By taking into account the ordinal nature of our variables of interest, we employ a bivariate order probit, to estimate the effect of energy poverty on well-being, and to investigate whether the welfare losses change for any severity level and life satisfaction. As both our main variables contain subjective information, we account for the endogeneity by imposing an exclusion restriction on the energy poverty determinants, namely the decades of the dwellings' construction.