The Relationship between Healthcare Expenditure and Disposable Personal Income in the US States: A Fractional Integration and Cointegration Analysis

35 Pages Posted: 10 Jun 2015

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Juncal Cunado

affiliation not provided to SSRN

Luis A. Gil-Alana

University of Navarra - Department of Economics

Rangan Gupta

University of Pretoria - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2015

Abstract

This study examines the relationship between healthcare expenditure and disposable income in the 50 US states over the period 1966-2009 using fractional integration and cointegration techniques. The degree of integration and nonlinearity of both series are found to vary considerably across states, whilst the fractional cointegration analysis suggests that a long-run relationship exists between them in only 11 out of the 50 US states. The estimated long-run income elasticity of healthcare expenditure suggests that health care is a luxury good in these states. By contrast, the short-run elasticity obtained from the regressions in first differences is in the range (0,1) for most US states, which suggests that health care is a necessity good instead. The implications of these results for health policy are also discussed.

Keywords: Healthcare expenditure, income elasticity, US states, fractional integration, fractional cointegration

JEL Classification: C22, C32, H51, I18

Suggested Citation

Caporale, Guglielmo Maria and Cunado, Juncal and Gil-Alana, Luis A. and Gupta, Rangan, The Relationship between Healthcare Expenditure and Disposable Personal Income in the US States: A Fractional Integration and Cointegration Analysis (May 2015). DIW Berlin Discussion Paper No. 1486, Available at SSRN: https://ssrn.com/abstract=2616339 or http://dx.doi.org/10.2139/ssrn.2616339

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Juncal Cunado

affiliation not provided to SSRN

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

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