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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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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. Hansen, Paul & King, Alan, 1998. "Health care expenditure and GDP: panel data unit root test results--comment," Journal of Health Economics, Elsevier, vol. 17(3), pages 377-381, June.
  2. 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, number 9780198288107, September.
  3. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  4. Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, vol. 10(01), pages 91-115, March.
  5. Blomqvist, A.G. & Carter, R.A.L., 1993. "Is Health Care Really a Luxury?," UWO Department of Economics Working Papers 9311, University of Western Ontario, Department of Economics.
  6. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
  7. McCoskey, Suzanne K. & Selden, Thomas M., 1998. "Health care expenditures and GDP: panel data unit root test results," Journal of Health Economics, Elsevier, vol. 17(3), pages 369-376, June.
  8. 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, vol. 11(1), pages 63-84, May.
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  10. 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.
  11. Gerdtham, Ulf-G. & Löthgren, Mickael, 1998. "On stationarity and cointegration of international health expenditure and GDP," Working Paper Series in Economics and Finance 232, Stockholm School of Economics, revised 29 Jan 1999.
  12. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  13. Hitiris, Theo & Posnett, John, 1992. "The determinants and effects of health expenditure in developed countries," Journal of Health Economics, Elsevier, vol. 11(2), pages 173-181, August.
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  15. 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, vol. 6(2), pages 109-127, June.
  16. Herwartz, Helmut & Neumann, Michael H., 2000. "Bootstrap inference in single equation error correction models," SFB 373 Discussion Papers 2000,87, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  17. Gerdtham, Ulf-G. & Jonsson, Bengt, 1991. "Conversion factor instability in international comparisons of health care expenditure," Journal of Health Economics, Elsevier, vol. 10(2), pages 227-234, July.
  18. Theo Hitiris, 1997. "Health care expenditure and integration in the countries of the European Union," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 1-6.
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Cited by:
  1. Joan Costa-i-Font & Marin Gemmill & Gloria Rubert, 2009. "Re-visiting the health care luxury good hypothesis: aggregation, precision, and publication biases?," LSE Research Online Documents on Economics 25303, London School of Economics and Political Science, LSE Library.
  2. Narayan, Paresh Kumar, 2006. "Examining structural breaks and growth rates in international health expenditures," Journal of Health Economics, Elsevier, vol. 25(5), pages 877-890, September.
  3. Paresh Kumar Narayan & Seema Narayan, 2008. "The role of permanent and transitory shocks in explaining international health expenditures," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1171-1186.
  4. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
  5. 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, vol. 14(1), pages 5-10, February.
  6. Jochen Hartwig, 2006. "What Drives Health Care Expenditure? Baumol’s Model of ‘Unbalanced Growth’ Revisited," KOF Working papers 06-133, KOF Swiss Economic Institute, ETH Zurich.
  7. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
  8. Narayan, Paresh Kumar & Narayan, Seema, 2008. "Does environmental quality influence health expenditures? Empirical evidence from a panel of selected OECD countries," Ecological Economics, Elsevier, vol. 65(2), pages 367-374, April.
  9. 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, vol. 12(2), pages 145-162, June.
  10. 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.
  11. Massimo Bordignon & Gilberto Turati, 2003. "Bailing Out Expectations and Health Expenditure in Italy," CESifo Working Paper Series 1026, CESifo Group Munich.
  12. Michel Dumont & Peter Willemé, 2013. "Working Paper 02-13 - Machines that go ‘ping’: medical technology and health expenditures in OECD countries," Working Papers 1302, Federal Planning Bureau, Belgium.
  13. Anindya Sen, 2005. "Is Health Care a Luxury? New Evidence from OECD Data," International Journal of Health Care Finance and Economics, Springer, vol. 5(2), pages 147-164, June.
  14. Tang, Chor Foon, 2010. "The determinants of health expenditure in Malaysia: A time series analysis," MPRA Paper 24356, University Library of Munich, Germany.

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