Is Health Care Really a Luxury in OECD Countries? Evidence from Alternative Price Deflators

Posted: 10 Jun 2012  

Paresh Kumar Kumar Narayan

Deakin University - School of Accounting, Economics and Finance

Seema Narayan

affiliation not provided to SSRN

Russell Smyth

Monash University - Department of Economics

Date Written: 2011

Abstract

This article examines whether real Health-care Expenditure (HE) is a luxury or necessity for Organization for Economic Co-Operation and Development (OECD) countries over the period 1972 to 2004 within a panel unit root and panel cointegration framework. To realize this objective, we regress HE on real Gross Domestic Product (GDP), the proportion of the population aged over 65 (P65) and a time trend (T). We first present results for 18 countries where real HE per capita is obtained using a general GDP deflator. For these countries, we find that health care is a luxury for just one country. Next, we present results for eight countries where real HE is obtained using a specific health-care price index. When the general GDP deflator is replaced with a specific health-care price index, at least one of the GDP, P65 or T coefficients for the eight countries changes in a reasonably dramatic fashion, suggesting that the use of the GDP deflator introduces bias into the regression. We find that HE is a necessity in all eight countries. Given that the reliability of the GDP deflator results is questionable, on the basis of the results for the eight countries, we conclude that HE is a necessity.

Suggested Citation

Narayan, Paresh Kumar Kumar and Narayan, Seema and Smyth, Russell, Is Health Care Really a Luxury in OECD Countries? Evidence from Alternative Price Deflators (2011). Applied Economics, Vol. 43, No. 2, pp. 3631-3643, 2011. Available at SSRN: https://ssrn.com/abstract=2080680

Paresh Kumar Kumar Narayan (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Seema Narayan

affiliation not provided to SSRN ( email )

Russell Smyth

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

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