Why Do Americans Spend so Much More on Health Care than Europeans? A General Equilibrium Macroeconomic Analysis

41 Pages Posted: 8 Mar 2013

See all articles by Hui He

Hui He

International Monetary Fund

Kevin X. D. Huang

Federal Reserve Bank of Philadelphia; Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: February 21, 2013

Abstract

Empirical evidence suggests that both leisure time and medical care are important for maintaining health. We develop a general equilibrium macroeconomic model in which taxation is a key determinant of the composition of these two inputs in the endogenous accumulation of health capital. In our model, higher taxes lead to using relatively more leisure time and less medical care in maintaining health. We find that the difference in taxation can account for a large fraction of the difference in health expenditure-GDP ratio and almost all of the difference in time input for health production between the US and Europe.

Keywords: Taxation, Time allocation, Health expenditure, Macroeconomics, General equilibrium

JEL Classification: E2, E6, H2

Suggested Citation

He, Hui and Huang, Kevin X. D., Why Do Americans Spend so Much More on Health Care than Europeans? A General Equilibrium Macroeconomic Analysis (February 21, 2013). Available at SSRN: https://ssrn.com/abstract=2229496 or http://dx.doi.org/10.2139/ssrn.2229496

Hui He (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://https://huihe.weebly.com/

Kevin X. D. Huang

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

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