Causal Effects of Health Shocks on Consumption and Debt: Quasi-Experimental Evidence from Bus Accident Injuries

Endogeneity in the health-wealth relationship presents a challenge for estimating causal effects of health shocks. Using a quasi-experimental study design, comprising exogenous shocks sustained as bus accident injuries in India, with, "controls," drawn from travelers on the same bus routes one year later, I present new evidence of causal effects of health shocks on household consumption and debt. Using primary household survey data, I find that households faced with the health shock-related expenditures, which were on average equal to two months of household income, are able to smooth consumption on food, housing, and festivals, with small reductions in education spending. Debt was the principal mechanism used by households to mitigate effects of the shock, leading to significantly larger levels of indebtedness among the exposed.