The Nature of Healthcare: A Cross-National Time Series Perspective
27 Pages Posted: 24 Dec 2008
Date Written: July 22, 2008
Is healthcare a luxury? An answer to this question in the health economics literature mostly relied on the use of the level of healthcare spending as the explained variable. But by using the level of healthcare spending as the dependent variable, we may fail to identify pure income effects and therefore, may not be able to estimate the income elasticity properly. Employing standard welfare comparison methods widely used in the development economics literature, it is argued that budget-share of healthcare in national income is a more convenient and better policy-relavant variable than the level of spending on healthcare. Using panel data from 23 OECD countries for the years 1960-1998, it is showed that aggregate healthcare is strictly a necessary and not a luxury service. Similarly, publicly provided healthcare is a necessary service too. Results on the privately provided healthcare are ambiguous and depends in part on the inclusion of the US in the sample of countries. The policy implications of the results found are also discussed briefly.
Keywords: Healthcare, International Health, Luxury Service, Panel Data
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