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Is Health Care a Necessity or a Luxury? New Evidence from a Panel of U.S. State-Level Data

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  • Donald G. Freeman

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    (Department of Economics and International Business, Sam Houston State University)

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    Abstract

    This paper estimates the income elasticity of health care expenditures using annual data on health spending by state in the U.S. from 1966-2009. Panel stationarity tests incorporating structural breaks in the levels and trends in Health Care Expenditures and Disposable Personal Income yield inconsistent results, with stationarity rejected for HCE but not for DPI. Regression results using levels estimation robust to orders of integration differed considerably depending on time period, and the cross-state variation in elasticity estimates was quite large. Results of the first difference models provide more consistent estimates across time periods, whether expressed as averages of individual state estimates or as pooled time series. Income elasticities for the full sample fall in the range 0.21-0.22, below that of recent research.

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    File URL: http://www.shsu.edu/%7Etcq001/paper_files/wp12-03_paper.pdf
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    Bibliographic Info

    Paper provided by Sam Houston State University, Department of Economics and International Business in its series Working Papers with number 1203.

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    Date of creation: Aug 2012
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    Handle: RePEc:shs:wpaper:1203

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    1. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
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    3. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
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    7. Holly, Sean & Pesaran, M. Hashem & Yamagata, Takashi, 2006. "A Spatio-Temporal Model of House Prices in the US," IZA Discussion Papers 2338, Institute for the Study of Labor (IZA).
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    9. Hansen, Paul & King, Alan, 1996. "The determinants of health care expenditure: A cointegration approach," Journal of Health Economics, Elsevier, vol. 15(1), pages 127-137, February.
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    13. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
    14. Josep Lluis Carrion Silvestre & Tomas del Barrio Castro & Enrique Lopez Bazo, 2003. "Breaking the panels. An application to the GDP per capita," Working Papers in Economics 97, Universitat de Barcelona. Espai de Recerca en Economia.
    15. Pritchett, Lant & Summers, Lawrence H., 1993. "Wealthier is healthier," Policy Research Working Paper Series 1150, The World Bank.
    16. 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.
    17. Donald Freeman, 2003. "Is health care a necessity or a luxury? Pooled estimates of income elasticity from US state-level data," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 495-502.
    18. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
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