Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data

Badi Baltagi () and Francesco Moscone ()

No 09/5, Discussion Papers in Economics from Department of Economics, University of Leicester

Abstract: This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.

Keywords: Health expenditure; income elasticity; cross section dependence; heterogeneous panels; factor models (search for similar items in EconPapers)
JEL-codes: C31 C33 H51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-ltv
Date: 2009-02
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