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Health expenditure and income in the United States

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  • F. Moscone
  • E. Tosetti

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 over the period 1980–2004, we study the non‐stationarity and co‐integration 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 has a multifactor structure, which may 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 detect significant spatial concentration in 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. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • F. Moscone & E. Tosetti, 2010. "Health expenditure and income in the United States," Health Economics, John Wiley & Sons, Ltd., vol. 19(12), pages 1385-1403, December.
    • Handle: RePEc:wly:hlthec:v:19:y:2010:i:12:p:1385-1403
    DOI: 10.1002/hec.1552
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    References listed on IDEAS

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    1. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    2. Lee, Lung-Fei, 2002. "Consistency And Efficiency Of Least Squares Estimation For Mixed Regressive, Spatial Autoregressive Models," Econometric Theory, Cambridge University Press, vol. 18(2), pages 252-277, April.
    3. Carrion-i-Silvestre, Josep Lluis, 2005. "Health care expenditure and GDP: Are they broken stationary?," Journal of Health Economics, Elsevier, vol. 24(5), pages 839-854, September.
    4. Di Matteo, Livio & Di Matteo, Rosanna, 1998. "Evidence on the determinants of Canadian provincial government health expenditures: 1965-1991," Journal of Health Economics, Elsevier, vol. 17(2), pages 211-228, April.
    5. Danziger, Sheldon & Gottschalk, Peter, 1987. "Earnings Inequality, the Spatial Concentration of Poverty, and the Underclass," American Economic Review, American Economic Association, vol. 77(2), pages 211-215, May.
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    More about this item

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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