Correlation or causation? Income inequality and infant mortality in fixed effects models in the period 1960-2008 in 34 OECD countries.

Income inequality is strongly associated with infant mortality across countries, but whether this association is causal has not been established. In their commentary in this issue of Social Science & Medicine, Regidor et al. (2012) argue that this association has disappeared in recent years, and question the premise of a causal link. This paper empirically tests the impact of income inequality on infant mortality in a fixed effects model that exploits the evolution of income inequality over a 38-year period, controlling for all time-invariant differences across countries. Data came from the Standardized World Income Inequality Database, containing yearly estimates for the period 1960-2008 in 34 countries member of the Organization for Economic Co-operation and Development (OECD), linked to infant mortality data from the OECD Health database. Infant mortality was modelled as a function of income inequality in a country and year fixed effects model, incorporating controls for changing economic and labour conditions. In a model without country fixed effects, a one-point increase in the Gini coefficient was associated with a 7% increase in the infant mortality rate (Rate ratio[RR] = 1.07, 95% Confidence Interval [CI] 1.04, 1.09). Controlling for differences across countries in a country fixed effects model, however, income inequality was no longer associated with infant mortality (RR = 1.00, 0.98, 1.01). Similar results were obtained when using lagged values of income inequality for up to 15 years, and in models that controlled for changing labour and economic conditions. Findings suggest that in the short-run, changes in income inequality are not associated with changes in infant mortality. A possible interpretation of the discrepancy between cross-country correlations and fixed effects models is that social policies that reduce infant mortality cluster in countries with low income inequality, but their effects do not operate via income. Findings highlight the need to examine the impact of more specific social policies on infant mortality.