Is Health Care Expenditure Really a Luxury Good? Re-Assessment and New Evidence Based on OECD Data

Abstract

The aim of the paper is to present new evidence on the relationship between income and health care expenditure allowing for (i) substitution and complementary relationships between private and public health care expenditure, (ii) presence of structural breaks in the dependent variables, and (iii) presence of heterogeneous institutional setting (country-specific health systems). Our results show that income elasticity is quite sensitive to the inclusion of technology variables and to health system heterogeneity, complementary and substitution relationships play an important role in determining public and private health care expenditure and, finally, public and private health care expenditures are both related with a cyclical indicator of the economic activity.

Keywords: health care expenditure, income elasticity, panel data, hypothesis testing, OECD

JEL Classification: C12, C21, C23, I10, I18