Modelling Time-Varying Income Elasticities of Health Care Expenditure for the OECD

42 Pages Posted: 30 Oct 2018

See all articles by Isabel Casas

Isabel Casas

University of Southern Denmark

Jiti Gao

Monash University - Department of Econometrics & Business Statistics

Shangyu Xie

University of International Business and Economics (UIBE) - School of Banking and Finance

Date Written: October 8, 2018

Abstract

Income elasticity dynamics of health expenditure is considered for the OECD and the Eurozone over the period 1995-2014. This paper studies a novel non-linear cointegration model with fixed effects, controlling for cross-section dependence and unobserved heterogeneity. Most importantly, its coefficients can vary over time and its variables can be non-stationary. The resulting asymptotic theory is fundamentally different with a faster rate of convergence to similar kernel smoothing methodologies. A fully modified kernel regression method is also proposed to reduce the asymptotic bias. Results show a steep increase in the income elasticity for the OECD and a small increase for the Eurozone.

Keywords: Cross-Sectional Dependence, Health Expenditure, Income Elasticity, Nonparametric Kernel Smoothing, Non-Stationarity, Super-Consistency

JEL Classification: C14, C23, G13, H51

Suggested Citation

Casas, Isabel and Gao, Jiti and Xie, Shangyu, Modelling Time-Varying Income Elasticities of Health Care Expenditure for the OECD (October 8, 2018). Available at SSRN: https://ssrn.com/abstract=3262326 or http://dx.doi.org/10.2139/ssrn.3262326

Isabel Casas

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Jiti Gao (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
61399031675 (Phone)
61399032007 (Fax)

HOME PAGE: http://www.jitigao.com

Shangyu Xie

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

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