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The impact of real income on insurance premiums: Evidence from panel data

  • Lee, Chien-Chiang
  • Chiu, Yi-Bin

This study applies a recently-developed panel smooth transition regression (PSTR) model and takes into account the potential endogeneity biases in order to establish country-specific and time-specific elasticities of insurance premiums with respect to real income for 36 selected countries from the period 1979–2007. The PSTR model endogenously determines the non-linear insurance-income nexus and allows for a continuum of an intermediate regime among extremes. We find overwhelming evidence in support of a non-linear income threshold. The life and non-life insurance premiums are inelastic and elastic with respect to real income, suggesting that they are a necessary good and luxury good respectively. Furthermore, as time goes on, the income elasticities of insurance premiums present a similar upward trend, implying that the impact of economic development on insurance premiums is more important in recent periods.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 21 (2012)
Issue (Month): 1 ()
Pages: 246-260

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Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:246-260
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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