IZA DP No. 14049: The Causal Impact of Depression on Cognitive Functioning: Evidence from Europe
Cognitive skills are important determinants of employment and productivity in older adults. Although cognitive decline is often linked to changes in mental health, the causal nature of the association between mental illness and cognitive performance is not established. In this paper, we analyse the effect of depressive symptoms on cognitive function. Based on longitudinal data for older adults of working age, we use an instrumental variable approach to show that worsening depressive symptoms lead to a decline in cognitive skills. The economic consequences of impaired cognition caused by depressive symptoms may be a large component of mental illness's social costs.