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Health care expenditure inertia in the OECD countries: A heterogeneous analysis


  • Albert Okunade


  • Chutima Suraratdecha



Health care expenditure studies of the Organization for Economic Cooperation and Development (OECD) countries remain important because their findings often suggest cost containment and other policy initiatives. This paper focuses on the compatibility of OECD health data with the “expenditure inertia” (or lagged adjustments) hypothesis, by modeling individual country time‐series data of 21 nations for the 1960–1993 period. Maximum likelihood estimates of the Box–Cox transformation regression models reveal that: (a) the hypothesized impact of health “expenditure inertia” is both pervasive and strong, averaging 0.64 across the countries; (b) the real GDP elasticities of health care expenditures vary widely among the countries and average 0.34 in the short run – implying that health care is a necessity; (c) the long run GDP elasticities are less than 1 in 8 countries, unitary elastic in 8 countries and elastic in 5 countries – suggesting that health care is not universally a necessity or a luxury commodity for the OECD countries; (d) physician‐inducement effects (dis‐inducement in a few countries) are weak, with a mean elasticity estimate of 0.17; and (e) no unique functional form approximation model is globally compatible with the data across the countries. Health care cost containment policy implications of these findings are explored. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Albert Okunade & Chutima Suraratdecha, 2000. "Health care expenditure inertia in the OECD countries: A heterogeneous analysis," Health Care Management Science, Springer, vol. 3(1), pages 31-42, January.
  • Handle: RePEc:kap:hcarem:v:3:y:2000:i:1:p:31-42
    DOI: 10.1023/A:1019020802989

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    Cited by:

    1. Joan Costa-Font & Marin Gemmill & Gloria Rubert, 2008. "Re-visiting the Health Care Luxury Good Hypothesis: Aggregation, Precision, and Publication Biases?," Working Papers in Economics 197, Universitat de Barcelona. Espai de Recerca en Economia.
    2. Okunade, Albert A. & Suraratdecha, Chutima, 2006. "The pervasiveness of pharmaceutical expenditure inertia in the OECD countries," Social Science & Medicine, Elsevier, vol. 63(1), pages 225-238, July.
    3. Di Matteo, Livio, 2005. "The macro determinants of health expenditure in the United States and Canada: assessing the impact of income, age distribution and time," Health Policy, Elsevier, vol. 71(1), pages 23-42, January.
    4. Till Bärnighausen & David E. Bloom, 2009. "Changing Research Perspectives on the Global Health Workforce," NBER Working Papers 15168, National Bureau of Economic Research, Inc.
    5. Mohan, Ramesh & Mirmirani, Sam, 2007. "An Assessment of OECD Health Care System Using Panel Data Analysis," MPRA Paper 6122, University Library of Munich, Germany.
    6. 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;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(1), pages 5-10, February.


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