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Testing the Grossman model of medical spending determinants with macroeconomic panel data

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Abstract

Michael Grossman’s human capital model of the demand for health has been argued to be one of the major achievements in theoretical health economics. Attempts to test this model empirically have been sparse, however, and with mixed results. These attempts so far relied on using – mostly cross-sectional – micro data from household surveys. For the first time in the literature we bring in macroeconomic panel data for 29 OECD countries over the period 1970-2010 to test the model. In order to check the robustness of the results for the determinants of medical spending identified by the model, we include additional covariates that have been suggested as determinants for medical spending in an Extreme Bounds Analysis (EBA) framework. The preferred model specifications (including the robust covariates) lend some support to the empirical relevance of the determinants of medical spending identified by the Grossman model, except for the relative medical price.

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  • Jochen Hartwig & Jan-Egbert Sturm, 2017. "Testing the Grossman model of medical spending determinants with macroeconomic panel data," KOF Working papers 17-426, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:17-426
    DOI: 10.3929/ethz-a-010832514
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    4. David Mhlanga & Rufaro Garidzirai, 2020. "The Influence of Racial Differences in the Demand for Healthcare in South Africa: A Case of Public Healthcare," IJERPH, MDPI, vol. 17(14), pages 1-10, July.

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    More about this item

    Keywords

    Medical spending; Grossman model; Extreme Bounds Analysis; OECD panel;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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