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Why Do Americans Spend So Much More on Health Care than Europeans?--A General Equilibrium Macroeconomic Analysis

  • Hui He

    ()

    (Shanghai University of Finance and Economics)

  • Kevin x.d. Huang

    ()

    (Vanderbilt University)

Empirical evidence suggests that both leisure time and medical care are important for maintaining health. We develop a general equilibrium macroeconomic model in which taxation is a key determinant of the composition of these two inputs in the endogenous accumulation of health capital. In our model, higher taxes lead to using relatively more leisure time and less medical care in maintaining health. We find that the difference in taxation can account for a large fraction of the difference in health expenditure-GDP ratio and almost all of the difference in time input for health production between the US and Europe.

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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 13-00005.

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Date of creation: 25 Mar 2013
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Handle: RePEc:van:wpaper:vuecon-sub-13-00005
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  7. Juergen Jung & Chung Tran, 2010. "Medical Consumption Over the Life Cycle: Facts from a U.S. Medical Expenditure Panel Survey," Discussion Papers 2010-08, School of Economics, The University of New South Wales.
  8. Hanming Fang & Alessandro Gavazza, 2010. "Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence," Working Papers 10-01, Duke University, Department of Economics.
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  10. Sickles, Robin C & Yazbeck, Abdo, 1998. "On the Dynamics of Demand for Leisure and the Production of Health," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 187-97, April.
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  13. Juergen Jung & Chung Tran, 2008. "The Macroeconomics of Health Savings Accounts," Caepr Working Papers 2007-023, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  14. Olovsson, Conny, 2004. "Why do Europeans Work so Little?," Seminar Papers 727, Stockholm University, Institute for International Economic Studies.
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  16. Motohiro Yogo, 2008. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," 2008 Meeting Papers 63, Society for Economic Dynamics.
  17. Steven J. Davis & Magnus Henrekson, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," NBER Working Papers 10509, National Bureau of Economic Research, Inc.
  18. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
  19. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June.
  20. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U. S. and Europe: Why so Different?," Harvard Institute of Economic Research Working Papers 2068, Harvard - Institute of Economic Research.
  21. Kai (Jackie) Zhao, 2011. "Social Security and the Rise in Health Spending: A Macroeconomic Analysis," 2011 Meeting Papers 1061, Society for Economic Dynamics.
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  23. Chen, Kaiji & Imrohoroglu, Ayse & Imrohoroglu, Selahattin, 2009. "A quantitative assessment of the decline in the U.S. current account," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1135-1147, November.
  24. Carl-Johan Dalgaard & Holger Strulik, 2010. "Optimal Aging and Death," PGDA Working Papers 5810, Program on the Global Demography of Aging.
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