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Income and Health Spending: Evidence from Oil Price Shocks

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  • Daron Acemoglu

    (MIT and NBER)

  • Amy Finkelstein

    (MIT and NBER)

  • Matthew J. Notowidigdo

    (University of Chicago, Booth School of Business, and NBER)

Abstract

Health expenditures as a share of GDP in the United States have more than tripled over the past half-century. A common conjecture is that this is a consequence of rising income. We investigate this hypothesis by instrumenting for local area income with time series variation in oil prices interacted with local oil reserves. This strategy enables us to capture both partial equilibrium and local general equilibrium effects of income on health expenditures. Our central income elasticity estimate is 0.7, with 1.1 as the upper end of the 95% confidence interval, which suggests that rising income is unlikely to be a major driver of the rising health expenditure share of GDP. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 4 (October)
Pages: 1079-1095

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Handle: RePEc:tpr:restat:v:95:y:2013:i:4:p:1079-1095

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Web page: http://mitpress.mit.edu/journals/

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Keywords: health care; income; technology; oil prices;

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References

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Cited by:
  1. Silvia Barbaresco & Charles J. Courtemanche & Yanling Qi, 2014. "Impacts of the Affordable Care Act Dependent Coverage Provision on Health-Related Outcomes of Young Adults," NBER Working Papers 20148, National Bureau of Economic Research, Inc.
  2. Glazer, Jacob & McGuire, Thomas G., 2013. "Making Medicare advantage a middle-class program," Journal of Health Economics, Elsevier, Elsevier, vol. 32(2), pages 463-473.
  3. Shawn Kantor & Alexander Whalley, 2009. "Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks," NBER Working Papers 15299, National Bureau of Economic Research, Inc.
  4. Charles I. Jones, 2011. "Life and Growth," NBER Working Papers 17094, National Bureau of Economic Research, Inc.
  5. Amitabh Chandra & Jonathan Holmes & Jonathan Skinner, 2013. "Is This Time Different? The Slowdown in Healthcare Spending," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 261-323.
  6. Andersen, Jørgen Juel & Aslaksen, Silje, 2013. "Oil and political survival," Journal of Development Economics, Elsevier, Elsevier, vol. 100(1), pages 89-106.
  7. Alexander James, 2014. "US State Fiscal Policy and Natural Resources," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 126, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  8. Kerwin Kofi Charles & Melvin Stephens Jr., 2013. "Employment, Wages, and Voter Turnout," American Economic Journal: Applied Economics, American Economic Association, American Economic Association, vol. 5(4), pages 111-43, October.
  9. Halvor Mehlum & Ragnar Torvik & Simone Valente, 2013. "China's Savings Multiplier," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 14713, Department of Economics, Norwegian University of Science and Technology.
  10. Andersen, Jørgen Juel, 2011. "The form of government and fiscal dynamics," European Journal of Political Economy, Elsevier, Elsevier, vol. 27(2), pages 297-310, June.
  11. Brückner, Markus & Schwandt, Hannes, 2013. "Income and Population Growth," IZA Discussion Papers 7422, Institute for the Study of Labor (IZA).
  12. Christine de la Maisonneuve & Joaquim Oliveira Martins, 2013. "Public Spending on Health and Long-term Care: A new set of projections," OECD Economic Policy Papers, OECD Publishing 6, OECD Publishing.
  13. Anca Cotet & Kevin K. Tsui, 2010. "Resource Curse or Malthusian Trap? Evidence from Oil Discoveries and Extractions," Working Papers, Ball State University, Department of Economics 201001, Ball State University, Department of Economics, revised Mar 2010.

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