Health Care Expenditure and GDP: An International Panel Smooth Transition Approach

Abstract

In this paper, we investigate the potential threshold effects in the relationship between national expenditures on health care and national income. Using a panel threshold regression model, we derive country-specific and time-specific income elasticities for 17 OECD countries over the period 1975-2003. In contrast to many previous analyses, our empirical results show that health care is a necessity rather than a luxury. Further, the relationship between health expenditure and income seems rather nonlinear, changing over time and across countries.

Keywords: Health Expenditure, Income Elasticity, Panel Smooth Threshold Regression Models

JEL Classification: C12