This paper investigates the economic consequences of sickness and death and
the manner in which poor urban households in Bangladesh respond to such
events. Based on longitudinal data we assess the effects of morbidity and
mortality episodes on household income, medical spending, labour supply and
consumption. We find that despite maintaining household labour supply, a
serious illness exerts a negative effect on household income for the poor.
However, the estimates do not reject consumption smoothing. The most
prominent response to finance current needs is to borrow from money lenders,
which leads to an increase in household debt-to-income ratios with possible
detrimental effects on future consumption.