Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data

24 Pages Posted: 5 Apr 2010

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; Syracuse University - Maxwell School of Citizenship and Public Affairs

Francesco Moscone

London School of Economics (LSE)

Abstract

This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.

Keywords: health expenditure, income elasticity, cross section dependence, heterogeneous panels, factor models

JEL Classification: C31, C33, H51

Suggested Citation

Baltagi, Badi H. and Moscone, Francesco, Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data. IZA Discussion Paper No. 4851, Available at SSRN: https://ssrn.com/abstract=1584182 or http://dx.doi.org/10.2139/ssrn.1584182

Badi H. Baltagi (Contact Author)

Syracuse University ( email )

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HOME PAGE: http://https://pbaltagi.wix.com/badibaltagi

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

Francesco Moscone

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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