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Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data

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  • Badi H. Baltagi
  • Francesco Moscone

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Abstract

This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/5.

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Date of creation: Feb 2009
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Handle: RePEc:lec:leecon:09/5

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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; heterogeneous panels; factor models;

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