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Is Health Care a Luxury? New Evidence from OECD Data

  • Anindya Sen

    ()

Most research using cross-country data find income elasticities equal to or exceeding unity with respect to health expenditure. These conclusions might be confounded due to omitted variables bias and the presence of unobserved country and year specific determinants of per capita health expenditures. I obtain results supporting these hypotheses using recent (1990–98) data from fifteen OECD countries. Specifically, OLS coefficient estimates drop by more than 50% with the use of two-way fixed effects models and the inclusion of various demand and supply based determinants of per capita health expenditures, implying income elasticities of between 0.21 and 0.51. Weighted Least Squares (WLS), Generalized Least Squares (GLS) and Instrumental Variables (IV) estimation yield similar results. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10754-005-1866-4
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Article provided by Springer in its journal International Journal of Health Care Finance and Economics.

Volume (Year): 5 (2005)
Issue (Month): 2 (June)
Pages: 147-164

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Handle: RePEc:kap:ijhcfe:v:5:y:2005:i:2:p:147-164
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=106603

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  1. Herwartz, Helmut & Theilen, Bernd, 2000. "The determinants of health care expenditure: Testing pooling restrictions in small samples," SFB 373 Discussion Papers 2000,78, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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  8. 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.
  9. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
  10. Ettner, Susan L., 1996. "New evidence on the relationship between income and health," Journal of Health Economics, Elsevier, vol. 15(1), pages 67-85, February.
  11. Di Matteo, Livio & Di Matteo, Rosanna, 1998. "Evidence on the determinants of Canadian provincial government health expenditures: 1965-1991," Journal of Health Economics, Elsevier, vol. 17(2), pages 211-228, April.
  12. 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.
  13. 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.
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