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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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File URL: http://www.accessecon.com/pubs/VUECON/VUECON-13-00005.pdf
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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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  1. Juergen Jung & Chung Tran, 2010. "Medical Consumption over the Life Cycle: Facts from a U.S. Medical Expenditure Panel Survey," Working Papers 2010-09, Towson University, Department of Economics, revised Mar 2013.
  2. Michael Insler, 2014. "The Health Consequences of Retirement," Journal of Human Resources, University of Wisconsin Press, vol. 49(1), pages 195-233.
  3. Fonseca, Raquel & Michaud, Pierre-Carl & Galama, Titus & Kapteyn, Arie, 2009. "On The Rise of Health Spending and Longevity," IZA Discussion Papers 4622, Institute for the Study of Labor (IZA).
  4. 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.
  5. Christopher J. Ruhm, 2000. "Are Recessions Good for Your Health?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 617-650.
  6. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
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