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Modelling time-varying income elasticities of health care expenditure for the OECD

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  • Isabel Casas
  • Jiti Gao
  • Shangyu Xie

Abstract

Income elasticity dynamics of health expenditure is considered for the OECD and the Eurozone over the period 1995-2014. This paper studies a novel non-linear cointegration model with fixed effects, controlling for cross-section dependence and unobserved heterogeneity. Most importantly, its coefficients can vary over time and its variables can be non-stationary. The resulting asymptotic theory is fundamentally different with a faster rate of convergence to similar kernel smoothing methodologies. A fully modified kernel regression method is also proposed to reduce the asymptotic bias. Results show a steep increase in the income elasticity for the OECD and a small increase for the Eurozone.

Suggested Citation

  • Isabel Casas & Jiti Gao & Shangyu Xie, 2018. "Modelling time-varying income elasticities of health care expenditure for the OECD," Monash Econometrics and Business Statistics Working Papers 22/18, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2018-22
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    More about this item

    Keywords

    cross-sectional dependence; health expenditure; income elasticity; nonparametric kernel smoothing; non-stationarity; super-consistency.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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