Income and the use of prescription drugs for near retirement individuals

Søren Leth-Petersen and Niels Skipper ()
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Niels Skipper: School of Economics and Management, Aarhus University, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Understanding how demand for prescription drugs responds to changes in income is important for assessing the welfare consequences of reforms affecting income. This becomes more imminent as age progresses, because the use of prescription drugs and the associated budgetary burden increases dramatically from about age 55. In this paper we estimate how demand for prescription drugs varies with income for a sample of near retirement individuals. Estimating the prescription drug demand response to income changes is complicated because an important explanatory variable, the health capital, is unobserved, and because demand is potentially dynamic, for example because some drugs are habitual. The analysis is based on a novel panel data set with information about purchase of prescription drug demand for a very large number of Danish individuals over the period 1995-2003. Our preferred model that takes into account the aforementioned complications performs better in an external validation test than models that can be estimated on cross section data. Results indicate that demand does respond to variations in income and that reforms affecting income therefore will affect the use of prescription drugs.

Keywords: Prescription drugs demand; income; near retirement (search for similar items in EconPapers)
JEL-codes: I11 I18 (search for similar items in EconPapers)
Pages: 32
Date: 2010-07-08
New Economics Papers: this item is included in nep-age and nep-hea
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2010-11

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