Health care expenditure and income in Europe

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Abstract
In this work we have tried to analyse the variations in health care expenditure in all the countries of the European Community except Greece and Portugal. We have wanted to provide additional evidence on the empirical relationship between expenditure on health care and income. Our analysis, starting from the approach of Fuchs and Baumol, has been an extension of the traditional studies on health care international comparisons, in at least three directions: we have not imposed any restrictions on the price effects, we have analysed dynamic models instead of the cross‐sectional analysis and we have used proper deflators. We have deflated health care expenditure in each country by means of its sectoral price index and by the purchasing parity power of its currency, to allow international comparisons. In the former case we express health care in terms of ‘expenditure’, in the latter we express health care in terms of ‘weighted quantity’. Income elasticities, in the short and in the long‐run, have been estimated using econometric methods that allow us to obtain simultaneously equilibrium long‐run relationships, if any, and adjustment processes in the short‐run. We have found cointegrating relationships and we have estimated consistent estimators of the elasticities. The estimated income elasticities are greater than one in all the models analysed.