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Rising health spending, new medical technology and the Baumol effect

Author

Listed:
  • Marc Pomp

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Suncica Vujic

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This paper estimates the Baumol effect in health spending, using a panel data set of OECD countries. Health expenditure as a share of GDP rises in most OECD countries. One of the possible causes is the so-called Baumol effect, which may arise if labour productivity in health care grows more slowly than in the overall economy. If in addition demand for health care is inelastic, then the share of health spending in GDP will rise over time. We do indeed find that one percentage growth in economy-wide labour productivity is associated with about 0.5 percent growth in real health spending. This implies that economy-wide productivity growth leads to higher real health spending.

Suggested Citation

  • Marc Pomp & Suncica Vujic, 2008. "Rising health spending, new medical technology and the Baumol effect," CPB Discussion Paper 115, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:115
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    References listed on IDEAS

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    1. Nordhaus William D, 2008. "Baumol's Diseases: A Macroeconomic Perspective," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-39, February.
    2. Jack E. Triplett & Barry P. Bosworth, 2003. "Productivity measurement issues in services industries: "Baumol's disease" has been cured," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 23-33.
    3. Menkveld, Albert J. & Koopman, Siem Jan & Lucas, Andre, 2007. "Modeling Around-the-Clock Price Discovery for Cross-Listed Stocks Using State Space Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 213-225, April.
    4. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    5. Frank R. Lichtenberg, 2007. "The Impact of New Drugs on US Longevity and Medical Expenditure, 1990–2003: Evidence from Longitudinal, Disease-Level Data," American Economic Review, American Economic Association, vol. 97(2), pages 438-443, May.
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    Citations

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    Cited by:

    1. Rubinstein, A., 2012. "Trends and Regularities of Consumption in the Performing Arts," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 158-164.
    2. Rubinstein, A., 2012. "Introductory Note," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 126-127.
    3. Błażej Łyszczarz & Ewelina Nojszewska, 2015. "Determinants of health care expenditure in Europe," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 183-198.
    4. Kamil Dybczak & Bartosz Przywara, 2010. "The role of technology in health care expenditure in the EU," European Economy - Economic Papers 2008 - 2015 400, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Felipa de Mello-Sampayo & Sofia de Sousa-Vale, 2014. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectional Dependent Panel," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 207-225, March.
    6. Kox, Henk L.M., 2011. "The future of the fence around the European labour market," MPRA Paper 31722, University Library of Munich, Germany.
    7. Astolfi, Roberto & Lorenzoni, Luca & Oderkirk, Jillian, 2012. "Informing policy makers about future health spending: A comparative analysis of forecasting methods in OECD countries," Health Policy, Elsevier, vol. 107(1), pages 1-10.

    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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