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Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data

  • Baltagi, Badi H.

    ()

    (Syracuse University)

  • Moscone, Francesco

    ()

    (Brunel University)

This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4851.

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Length: 24 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published in: Economic Modelling, 2010, 27 (4), 804-811
Handle: RePEc:iza:izadps:dp4851
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