Why Do Americans Spend So Much More on Health Care than Europeans? (REVISED)

Hui He (), Kevin Huang () and Lei Ning ()
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Lei Ning: Shanghai University of Finance and Economics

No 19-00008, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Empirical evidence shows that both leisure and medical care are important for maintaining health. And taxation may affect the allocation of these two inputs. We build a life-cycle overlapping-generations model in which taxation and relative health care price are key determinants of the composition of the two inputs in the endogenous accumulation of health capital. In the model, a lower tax wedge leads to using relatively more medical care and less leisure in maintaining health, while a higher relative health care price implies an opposite substitution in quantity (away from medical care towards leisure) that weakens the direct bearing of the higher price on overall health spending. We show that differences in taxation and in relative health care price between the US and Europe can jointly account for a bulk of their differences in health expenditure- GDP ratio and in leisure time allocated for health production, with the taxation channel playing a quantitatively more significant role.

Keywords: Macro-health; Taxation; Relative health care price; Health care expenditure; Time allocation; Life cycle; Overlapping generations (search for similar items in EconPapers)
JEL-codes: E6 H2 (search for similar items in EconPapers)
Date: 2019-04-09
New Economics Papers: this item is included in nep-dge, nep-hea and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:vuecon-sub-19-0008

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