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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. Kenkel, D.S., 1989. "Should You Eat Breakfast? Estimates From Health Production Functions," Papers 9-90-8, Pennsylvania State - Department of Economics.
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  6. Motohiro Yogo, 2009. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing and Risky Assets," Working Papers, Center for Retirement Research at Boston College wp2009-3, Center for Retirement Research, revised Jan 2009.
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  8. Finkelstein, Amy & Luttmer, Erzo F. P. & Notowidigdo, Matthew J., 2008. "What Good Is Wealth without Health? The Effect of Health on the Marginal Utility of Consumption," Working Paper Series rwp08-036, Harvard University, John F. Kennedy School of Government.
  9. Lee Ohanian & Andrea Raffo & Richard Rogerson, 2006. "Long-term changes in labor supply and taxes: evidence from OECD countries, 1956-2004," Research Working Paper RWP 06-16, Federal Reserve Bank of Kansas City.
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  11. Zhigang Feng, 2009. "Macroeconomic Consequences of Alternative Reforms to the Health Insurance System in the U.S," Working Papers 0908, University of Miami, Department of Economics.
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  14. 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.
  15. 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.
  16. 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.
  17. Kai (Jackie) Zhao, 2011. "Social Security and the Rise in Health Spending: A Macroeconomic Analysis," 2011 Meeting Papers 1061, Society for Economic Dynamics.
  18. Michael Insler, 2013. "The Health Consequences of Retirement," Departmental Working Papers 43, United States Naval Academy Department of Economics.
  19. 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.
  20. Contoyannis, Paul & Jones, Andrew M., 2004. "Socio-economic status, health and lifestyle," Journal of Health Economics, Elsevier, vol. 23(5), pages 965-995, September.
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  25. Kevin x.d. Huang & Hui He & Sheng-ti Hung, 2013. "Substituting Leisure for Health Expenditure: A General Equilibrium-Based Empirical Investigation," Vanderbilt University Department of Economics Working Papers 13-00020, Vanderbilt University Department of Economics.
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