Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data
Badi H. Baltagi
Syracuse University - Maxwell School of Citizenship and Public Affairs; Institute for the Study of Labor (IZA)
London School of Economics (LSE)
IZA Discussion Paper No. 4851
This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.
Number of Pages in PDF File: 24
Keywords: health expenditure, income elasticity, cross section dependence, heterogeneous panels, factor models
JEL Classification: C31, C33, H51working papers series
Date posted: April 5, 2010
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