The Relationship between Healthcare Expenditure and Disposable Personal Income in the US States: A Fractional Integration and Cointegration Analysis
CESifo, Munich, 2015
CESifo Working Paper No. 5407
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This study examines the relationship between healthcare expenditure and disposable income in the 50 US states over the period 1966-2009 using fractional integration and cointegration techniques. The degree of integration and non-linearity of both series are found to vary considerably across states, whilst the fractional cointegration analysis suggests that a long-run relationship exists between them in only 11 out of the 50 US states. The estimated long-run income elasticity of healthcare expenditure suggests that health care is a luxury good in these states. By contrast, the short-run elasticity obtained from the regressions in first differences is in the range (0,1) for most US states, which suggests that health care is a necessity good instead. The implications of these results for health policy are also discussed.
Fiscal Policy, Macroeconomics and Growth
Empirical and Theoretical Methods