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Is Health Care a Luxury? New Evidence from OECD Data

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Abstract

Most research using cross-country data find income elasticities equal to or exceeding unity with respect to health expenditure. These conclusions might be confounded due to omitted variables bias and the presence of unobserved country and year specific determinants of per capita health expenditures. I obtain results supporting these hypotheses using recent (1990–98) data from fifteen OECD countries. Specifically, OLS coefficient estimates drop by more than 50% with the use of two-way fixed effects models and the inclusion of various demand and supply based determinants of per capita health expenditures, implying income elasticities of between 0.21 and 0.51. Weighted Least Squares (WLS), Generalized Least Squares (GLS) and Instrumental Variables (IV) estimation yield similar results.

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  1. Department of Economics, University of Waterloo, 200 University Avenue W., Waterloo, Ontario, Canada, N2L 3G1

    Anindya Sen

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  1. Anindya Sen
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Correspondence to Anindya Sen.

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JEL classification: I18

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Sen, A. Is Health Care a Luxury? New Evidence from OECD Data. Int J Health Care Finance Econ 5, 147–164 (2005). https://doi.org/10.1007/s10754-005-1866-4

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  • DOI: https://doi.org/10.1007/s10754-005-1866-4

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