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Health Expenditure and Income in the United States

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  • Elisa Tosetti

    ()

  • Francesco Moscone

    ()

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 followed over the period 1980-2004, we study the non-stationarity and cointegration 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 is the sum of a multifactor structure and a spatial autoregressive process, which 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 observe a significant spatial spill over, though with a smaller intensity than that detected in other studies on spatial concentration of 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.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 07/14.

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Date of creation: Oct 2007
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Handle: RePEc:lec:leecon:07/14

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Keywords: Health expenditure; income elasticity; cross section dependence; panels;

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References

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  1. Di Matteo, Livio & Di Matteo, Rosanna, 1998. "Evidence on the determinants of Canadian provincial government health expenditures: 1965-1991," Journal of Health Economics, Elsevier, Elsevier, vol. 17(2), pages 211-228, April.
  2. Lee, Lung-Fei, 2002. "Consistency And Efficiency Of Least Squares Estimation For Mixed Regressive, Spatial Autoregressive Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 18(02), 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, Elsevier, vol. 24(5), pages 839-854, September.
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Citations

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Cited by:
  1. Max Groneck & Christoph Kaufmann, 2014. "Relative Sectoral Prices and Population Ageing: A Common Trend," Working Paper Series in Economics, University of Cologne, Department of Economics 69, University of Cologne, Department of Economics.
  2. de Mello-Sampayo, Felipa & de Sousa-Vale, Sofia, 2012. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectionally Dependent Panel," MPRA Paper 41073, University Library of Munich, Germany.
  3. Thomas Barnay & Olivier Damette, 2012. "What drives Health Care Expenditure in France since 1950? A time-series study with structural breaks and nonlinearity approaches," Working Papers halshs-00856117, HAL.
  4. Munic Boungnarasy, 2011. "Health care expenditures in Asia countries: Panel data analysis," Economics Bulletin, AccessEcon, vol. 31(4), pages 3169-3178.
  5. Massimo Filippini & Fabian Heimsch & Giuliano Masiero, 2013. "Antibiotic consumption and the role of dispensing physicians," CEPRA working paper, USI Università della Svizzera italiana 1302, USI Università della Svizzera italiana.
  6. Francis Teal & Markus Eberhardt, 2010. "Aggregation versus Heterogeneity in Cross-Country Growth Empirics," Economics Series Working Papers CSAE WPS/2010-32, University of Oxford, Department of Economics.
  7. Thomas Barnay & Olivier Damette, 2012. "What drives Health Care Expenditure in France since 1950?," Working Papers hal-00717435, HAL.
  8. Bai, Jushan & Carrion-i-Silvestre, Josep Lluis, 2009. "Testing Panel Cointegration with Unobservable Dynamic Common Factors," MPRA Paper 35243, University Library of Munich, Germany.
  9. 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, Sam Houston State University, Department of Economics and International Business 1203, Sam Houston State University, Department of Economics and International Business.
  10. 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, Springer, vol. 14(1), pages 21-39, February.
  11. Mohammadi, Hassan & Parvaresh, Shahrokh, 2014. "Energy consumption and output: Evidence from a panel of 14 oil-exporting countries," Energy Economics, Elsevier, Elsevier, vol. 41(C), pages 41-46.
  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. Declan French, 2012. "Causation between health and income: a need to panic," Empirical Economics, Springer, Springer, vol. 42(2), pages 583-601, April.
  14. KiHoon Jimmy Hong & Bin Peng & Xiaohui Zhang, 2014. "Capturing the Impact of Latent Industry-Wide Shocks with Dynamic Panel Model," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 347, Quantitative Finance Research Centre, University of Technology, Sydney.
  15. 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, Springer, vol. 12(2), pages 145-162, June.
  16. Chakroun, Mohamed, 2009. "Health care expenditure and GDP: An international panel smooth transition approach," MPRA Paper 14322, University Library of Munich, Germany.

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