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
Date Written: May 2015
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
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