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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 (C) 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1552
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 19 (2010)
Issue (Month): 12 (December)
Pages: 1385-1403

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Handle: RePEc:wly:hlthec:v:19:y:2010:i:12:p:1385-1403

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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Keywords: health expenditure ; income elasticity ; cross section ; dependence ; panels ;

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References

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  1. 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.
  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(02), pages 252-277, April.
  3. 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.
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Cited by:
  1. Marwa Farag & A. NandaKumar & Stanley Wallack & Dominic Hodgkin & Gary Gaumer & Can Erbil, 2012. "The income elasticity of health care spending in developing and developed countries," International Journal of Health Care Finance and Economics, Springer, vol. 12(2), pages 145-162, June.
  2. Felipa de Mello-Sampayo & Sofia de Sousa Vale, 2012. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectionally Dependent Panel," Working Papers Department of Economics 2012/34, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  3. Massimo Filippini & Fabian Heimsch & Giuliano Masiero, 2013. "Antibiotic consumption and the role of dispensing physicians," CEPRA working paper 1302, USI Università della Svizzera italiana.
  4. Markus Eberhardt & Francis Teal, 2010. "Aggregation versus Heterogeneity in Cross-Country Growth Empirics," CSAE Working Paper Series 2010-32, Centre for the Study of African Economies, University of Oxford.
  5. KiHoon Jimmy Hong & Bin Peng & Xiaohui Zhang, 2014. "Capturing the Impact of Latent Industry-Wide Shocks with Dynamic Panel Model," Research Paper Series 347, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Thomas Barnay & Olivier Damette, 2012. "What drives Health Care Expenditure in France since 1950? A time-series study with structural breaks and nonlinearity approaches," TEPP Working Paper 2012-01, TEPP.
  7. Declan French, 2012. "Causation between health and income: a need to panic," Empirical Economics, Springer, vol. 42(2), pages 583-601, April.
  8. Chakroun, Mohamed, 2009. "Health care expenditure and GDP: An international panel smooth transition approach," MPRA Paper 14322, University Library of Munich, Germany.
  9. Max Groneck & Christoph Kaufmann, 2014. "Relative Sectoral Prices and Population Ageing: A Common Trend," Working Paper Series in Economics 69, University of Cologne, Department of Economics.
  10. Mohammadi, Hassan & Parvaresh, Shahrokh, 2014. "Energy consumption and output: Evidence from a panel of 14 oil-exporting countries," Energy Economics, Elsevier, vol. 41(C), pages 41-46.
  11. Thomas Barnay & Olivier Damette, 2012. "What drives Health Care Expenditure in France since 1950?," Working Papers hal-00717435, HAL.
  12. Peter Eibich & Nicolas R. Ziebarth, 2013. "Examining the Structure of Spatial Health Effects in Germany Using Hierarchical Bayes Models," SOEPpapers on Multidisciplinary Panel Data Research 620, DIW Berlin, The German Socio-Economic Panel (SOEP).
  13. Bai, Jushan & Carrion-i-Silvestre, Josep Lluis, 2009. "Testing Panel Cointegration with Unobservable Dynamic Common Factors," MPRA Paper 35243, University Library of Munich, Germany.
  14. Munic Boungnarasy, 2011. "Health care expenditures in Asia countries: Panel data analysis," Economics Bulletin, AccessEcon, vol. 31(4), pages 3169-3178.
  15. Stefan Felder & Harald Tauchmann, 2013. "Federal state differentials in the efficiency of health production in Germany: an artifact of spatial dependence?," The European Journal of Health Economics, Springer, vol. 14(1), pages 21-39, February.
  16. Donald G. Freeman, 2012. "Is Health Care a Necessity or a Luxury? New Evidence from a Panel of U.S. State-Level Data," Working Papers 1203, Sam Houston State University, Department of Economics and International Business.

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