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The determinants of health care expenditure: Testing pooling restrictions in small samples

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  • Herwartz, Helmut
  • Theilen, Bernd

Abstract

Healthcare expenditure has increased substantially in all western industrialized countries in the last decades. The necessity to contain the increase in health care expenditure has motivated the Analysis of its determinants to explain differences across countries and health systems. However, recent studies have questioned the use of cross~section data arguing that health systems are too different to allow for such comparisons. In this paper we investigate whether this criticism is really justified. We analyze the variations of health care expenditure in OECD countries relative to income, population aging and technological change. Our analysis is based on pooled cross-section data and time series. Firstly, formulating an error correction model for individual countries we demonstrate that for almost all of the countries investigated the variables are cointegrated. Secondly, we use a bootstrap framework for inference and examine whether the influence of the explanatory variables is unique across countries. Applying recursive estimation procedures we find that there is evidence for a common influence in the period 1961 to 1979 while in the last two decades explanatory variables have different impacts on health care expenditure across countries. This indicates the divergence of health systems and the growing importance of country-specific effects in the explanation of differences in health care expenditure across countries. --

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Bibliographic Info

Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,78.

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Date of creation: 2000
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Handle: RePEc:zbw:sfb373:200078

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  1. 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, Michigan State - Econometrics and Economic Theory 8905, Michigan State - Econometrics and Economic Theory.
  2. Blomqvist, A.G. & Carter, R.A.L., 1993. "Is Health Care Really a Luxury?," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9311, University of Western Ontario, Department of Economics.
  3. Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 10(01), pages 91-115, March.
  4. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288107, October.
  5. Gerdtham, Ulf-G. & Jonsson, Bengt, 1991. "Conversion factor instability in international comparisons of health care expenditure," Journal of Health Economics, Elsevier, Elsevier, vol. 10(2), pages 227-234, July.
  6. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  7. Hansen, Paul & King, Alan, 1996. "The determinants of health care expenditure: A cointegration approach," Journal of Health Economics, Elsevier, Elsevier, vol. 15(1), pages 127-137, February.
  8. Gerdtham, Ulf-G. & Lothgren, Mickael, 2000. "On stationarity and cointegration of international health expenditure and GDP," Journal of Health Economics, Elsevier, Elsevier, vol. 19(4), pages 461-475, July.
  9. Parkin, David & McGuire, Alistair & Yule, Brian, 1987. "Aggregate health care expenditures and national income : Is health care a luxury good?," Journal of Health Economics, Elsevier, Elsevier, vol. 6(2), pages 109-127, June.
  10. Herwartz, Helmut & Neumann, Michael H., 2000. "Bootstrap inference in single equation error correction models," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,87, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 431, Board of Governors of the Federal Reserve System (U.S.).
  12. McCoskey, Suzanne K. & Selden, Thomas M., 1998. "Health care expenditures and GDP: panel data unit root test results," Journal of Health Economics, Elsevier, Elsevier, vol. 17(3), pages 369-376, June.
  13. Theo Hitiris, 1997. "Health care expenditure and integration in the countries of the European Union," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(1), pages 1-6.
  14. Hitiris, Theo & Posnett, John, 1992. "The determinants and effects of health expenditure in developed countries," Journal of Health Economics, Elsevier, Elsevier, vol. 11(2), pages 173-181, August.
  15. repec:wop:humbsf:2000-87 is not listed on IDEAS
  16. Hansen, Paul & King, Alan, 1998. "Health care expenditure and GDP: panel data unit root test results--comment," Journal of Health Economics, Elsevier, Elsevier, vol. 17(3), pages 377-381, June.
  17. Gerdtham, Ulf-G. & Sogaard, Jes & Andersson, Fredrik & Jonsson, Bengt, 1992. "An econometric analysis of health care expenditure: A cross-section study of the OECD countries," Journal of Health Economics, Elsevier, Elsevier, vol. 11(1), pages 63-84, May.
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Cited by:
  1. Massimo Bordignon & Gilberto Turati, 2003. "Bailing Out Expectations and Health Expenditure in Italy," CESifo Working Paper Series 1026, CESifo Group Munich.
  2. Narayan, Paresh Kumar & Narayan, Seema, 2008. "Does environmental quality influence health expenditures? Empirical evidence from a panel of selected OECD countries," Ecological Economics, Elsevier, Elsevier, vol. 65(2), pages 367-374, April.
  3. Costa-Font, J & Gemmill M & Rubert G, 2009. "Re-visiting the Health Care Luxury Good Hypothesis: Aggregation, Precision, and Publication Biases?," Health, Econometrics and Data Group (HEDG) Working Papers, HEDG, c/o Department of Economics, University of York 09/02, HEDG, c/o Department of Economics, University of York.
  4. Potrafke, Niklas, 2012. "Political cycles and economic performance in OECD countries: Empirical evidence from 1951-2006," Munich Reprints in Economics, University of Munich, Department of Economics 19272, University of Munich, Department of Economics.
  5. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: do government ideology and electoral motives matter?," MPRA Paper 24083, University Library of Munich, Germany.
  6. Hartwig, Jochen, 2008. "What drives health care expenditure?--Baumol's model of 'unbalanced growth' revisited," Journal of Health Economics, Elsevier, Elsevier, vol. 27(3), pages 603-623, May.
  7. Narayan, Paresh Kumar, 2006. "Examining structural breaks and growth rates in international health expenditures," Journal of Health Economics, Elsevier, Elsevier, vol. 25(5), pages 877-890, September.
  8. Lau, Marco Chi Keung & Fung, Ka Wai Terence, 2013. "Convergence in Health Care Expenditure of 14 EU Countries: New Evidence from Non-linear Panel Unit Root Test," MPRA Paper 52871, University Library of Munich, Germany.
  9. Tang, Chor Foon, 2010. "The determinants of health expenditure in Malaysia: A time series analysis," MPRA Paper 24356, University Library of Munich, Germany.
  10. Nilgun Yavuz & Veli Yilanci & Zehra Ozturk, 2013. "Is health care a luxury or a necessity or both? Evidence from Turkey," The European Journal of Health Economics, Springer, Springer, vol. 14(1), pages 5-10, February.
  11. Michel Dumont & Peter Willemé, 2013. "Working Paper 02-13 - Machines that go ‘ping’: medical technology and health expenditures in OECD countries," Working Papers, Federal Planning Bureau, Belgium 1302, Federal Planning Bureau, Belgium.
  12. Anindya Sen, 2005. "Is Health Care a Luxury? New Evidence from OECD Data," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 5(2), pages 147-164, June.
  13. 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.
  14. Paresh Kumar Narayan & Seema Narayan, 2008. "The role of permanent and transitory shocks in explaining international health expenditures," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(10), pages 1171-1186.

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