How does heterogeneity shape the socioeconomic gradient in health satisfaction?

Individual heterogeneity plays a key role in explaining variation in self-reported health and its socioeconomic gradient. It is hypothesised that the influence of this heterogeneity varies over levels of health and increases over the life cycle. These hypotheses are tested by applying a threshold-specific alternative to the conditional fixed-effects logit and longitudinal data from Germany. Our results suggest that income influences health at the lower end, but not at the higher end of the health distribution, once unobservable factors are controlled for. The underlying assumptions of the statistical model matter for this conclusion, in particular for the older age groups.