05.12.2025 |
Research
Cash transfers improved mental health
A recent study by Kari Hämäläinen, Miska Simanainen and Jouko Verho examines the effects of income growth on health using data from Finland’s basic income experiment.
A large randomized experiment shows that an increase in income improves mental health. The study by Kari Hämäläinen (VATT, FIT), Miska Simanainen (Kela, Stockholm University) and Jouko Verho (VATT, CESifo, FIT) mainly focused on the long-term unemployed, among whom mental health problems are common. The data used was from Finland’s basic income experiment (2017–2018), which offered a rare opportunity to assess the health effects of income transfers.
The link between income and health is well known, but descriptive observations cannot determine whether larger income transfers would reduce health inequalities. The causal relationship may also work in the other direction: good health can lead to a better career and higher earnings. However, in the basic income experiment, it was possible to assess the causal income effect because the participants were selected at random. The resulting income variation was independent of the relationship between income and health.
According to the results, a 9–11 percent increase in disposable income reduced the use of mental health drugs by 8–11 percent and reduced visits to specialized mental health care. No effects were observed for other disease diagnoses. This suggests that the increase in income alleviated financial stress, which improved mental health.
The use of medication began to decline six months after the start of the experiment and remained lower even after the trial ended. The use of psychotropic medication was common among the target group of the experiment: in the control group, an average of 240 daily doses per person were used during the three-year follow-up period.
However, the health impact was limited: the use of psychotropic drugs decreased by approximately 20 daily doses per person over a three-year period. Targeted mental health services are likely to be a much more cost-effective way of treating mental health problems than a change in the benefit system such as the one experimented.
The article Health effects of cash transfers: Evidence from the Finnish basic income experiment has been published in Journal of Public Economics in October 2025.
