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Rising health spending, new medical technology and the Baumol effect

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  • Marc Pomp
  • Suncica Vujic
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    Abstract

    This paper estimates the Baumol effect in health spending, using a panel data set of OECD countries. Health expenditure as a share of GDP rises in most OECD countries. One of the possible causes is the so-called Baumol effect, which may arise if labour productivity in health care grows more slowly than in the overall economy. If in addition demand for health care is inelastic, then the share of health spending in GDP will rise over time. We do indeed find that one percentage growth in economy-wide labour productivity is associated with about 0.5 percent growth in real health spending. This implies that economy-wide productivity growth leads to higher real health spending.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 115.

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    Date of creation: Dec 2008
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    Handle: RePEc:cpb:discus:115

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    1. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    2. Frank R. Lichtenberg, 2007. "The Impact of New Drugs on US Longevity and Medical Expenditure, 1990–2003: Evidence from Longitudinal, Disease-Level Data," American Economic Review, American Economic Association, vol. 97(2), pages 438-443, May.
    3. Jack E. Triplett & Barry P. Bosworth, 2003. "Productivity measurement issues in services industries: "Baumol's disease" has been cured," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 23-33.
    4. Nordhaus William D, 2008. "Baumol's Diseases: A Macroeconomic Perspective," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-39, February.
    5. Menkveld, Albert J. & Koopman, Siem Jan & Lucas, Andre, 2007. "Modeling Around-the-Clock Price Discovery for Cross-Listed Stocks Using State Space Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 213-225, April.
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    Cited by:
    1. Kox, Henk L.M., 2011. "The future of the fence around the European labour market," MPRA Paper 31722, University Library of Munich, Germany.
    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. Rubinstein, A., 2012. "Introductory Note," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 126-127.
    4. Rubinstein, A., 2012. "Trends and Regularities of Consumption in the Performing Arts," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 158-164.
    5. Kamil Dybczak & Bartosz Przywara, 2010. "The role of technology in health care expenditure in the EU," European Economy - Economic Papers 400, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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