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Does the U.S. health care sector suffer from Baumol's cost disease? Evidence from the 50 states

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  • Bates, Laurie J.
  • Santerre, Rexford E.

Abstract

This study examines if health care costs in the United States are affected by Baumol's cost disease. It relies on an empirical test proposed by Hartwig (2008) and extended by Colombier (2010) and uses a panel data set of 50 states over the 1980–2009 period. The results suggest that health care costs grow more rapidly when economy-wide wage increases exceed productivity gains. The findings are fairly robust with respect to time- and state-fixed effects, individual state time trends, and two-stage least square estimation. Consequently, this study suggests that the U.S. health care sector suffers from Baumol's cost disease.

Suggested Citation

  • Bates, Laurie J. & Santerre, Rexford E., 2013. "Does the U.S. health care sector suffer from Baumol's cost disease? Evidence from the 50 states," Journal of Health Economics, Elsevier, vol. 32(2), pages 386-391.
    • Handle: RePEc:eee:jhecon:v:32:y:2013:i:2:p:386-391
    DOI: 10.1016/j.jhealeco.2012.12.003
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    References listed on IDEAS

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    11. Colombier, Carsten, 2012. "Drivers of health care expenditure: Does Baumol's cost disease loom large?," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 12-5, University of Cologne, FiFo Institute for Public Economics.
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    More about this item

    Keywords

    Health care costs; Baumol cost disease; Unbalanced growth; Service sector; Aggregate productivity;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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