Health Expenditure and Income in the United States

Elisa Tosetti and Francesco Moscone ()

No 07/14, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: This paper investigates the long-run economic relationship between health care expenditure and income in the US at a State level. Using a panel of 49 US States followed over the period 1980-2004, we study the non-stationarity and cointegration between health spending and income, ultimately measuring income elasticity of health care. The tests we adopt allow us to explicitly control for cross-section dependence and unobserved heterogeneity. Specifically, in our regression equations we assume that the error is the sum of a multifactor structure and a spatial autoregressive process, which capture global shocks and local spill overs in health expenditure. Our results suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in other US studies. Further, we observe a significant spatial spill over, though with a smaller intensity than that detected in other studies on spatial concentration of US health spending. Our broad perspective of cross section dependence as well as the methods used to capture it give new insights on the debate over the relationship between health spending and income.

Keywords: Health expenditure; income elasticity; cross section dependence; panels (search for similar items in EconPapers)
JEL-codes: C31 C33 H51 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-hea
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Citations: View citations in EconPapers (16)

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