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Why Do Americans Spend So Much More on Health Care than Europeans?

  • Kevin X. D. Huang

    ()

    (Vanderbilt University)

  • Hui He

    ()

    (Shanghai University of Finance and Economics)

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 difference in taxation between the US and Europe can account for a large fraction of their difference in health expenditure-GDP ratio and almost all of their difference in time input for health production.

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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 13-00021.

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Date of creation: 23 Dec 2013
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Handle: RePEc:van:wpaper:vuecon-sub-13-00021
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," SSE/EFI Working Paper Series in Economics and Finance 560, Stockholm School of Economics.
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  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. Sheng-Ti Hung & Kevin X.D. Huang & Hui He, 2013. "Substituting Leisure for Health Expenditure: A General Equilibrium-Based Empirical Investigation," 2013 Meeting Papers 1310, Society for Economic Dynamics.
  6. Michael Insler, 2013. "The Health Consequences of Retirement," Departmental Working Papers 43, United States Naval Academy Department of Economics.
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  8. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
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  18. repec:gdm:wpaper:5810 is not listed on IDEAS
  19. Conny Olovsson, 2004. "Why do Europeans Work so Little?," 2004 Meeting Papers 760, Society for Economic Dynamics.
  20. 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.
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  23. 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.
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  26. Gerdtham, Ulf-G. & Jonsson, Bengt, 2000. "International comparisons of health expenditure: Theory, data and econometric analysis," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 1, pages 11-53 Elsevier.
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