How does the incidence rate affect real income across Russian regions?

The paper aims at estimating the effect of increase in incidence rate on real income in the regions of the Russian Federation.According to the main research hypothesis, underestimation or overestimation of this effect may occur due to false positive and false negative errors.We apply the method of instrumental variables to improve the accuracy of estimates.Our results show that an increase in the incidence rate in the region by 1% on average results in a decrease in real income by 0,54%, which is three times higher than the estimates obtained from the basic models.We attribute the discrepancy occurred to such factors as reverse causality, missing variables, and peculiarities related to data collection.Practical implications of our research are that the findings might strengthen the arguments for the increased funding of health care programs and support intervention decision making related to effective reduction of morbidity and mortality from various diseases across the regions of the Russian Federation.Our study also contributes to the theoretical literature discussing approaches to assess the relationship between real income and a combination of social and demographic factors at the regional level.