Health expenditure, income elasticity, cross section dependence, heterogeneous panels, factor models
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 modeled 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.
Baltagi, Badi H. and Moscone, Francesco, "Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data" (2010). Center for Policy Research. Paper 46.
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