The income elasticity of health care spending in developing and developed countries

Abstract

To date, international analyses on the strength of the relationship between country-level per capita income and per capita health expenditures have predominantly used developed countries' data. This study expands this work using a panel data set for 173 countries for the 1995-2006 period. We found that health care has an income elasticity that qualifies it as a necessity good, which is consistent with results of the most recent studies. Furthermore, we found that health care spending is least responsive to changes in income in low-income countries and most responsive to in middle-income countries with high-income countries falling in the middle. Finally, we found that 'Voice and Accountability' as an indicator of good governance seems to play a role in mobilizing more funds for health.

Health Care Expenditure and GDP in African Countries: Evidence from Semiparametric Estimation with Panel Data

“…Based on Figures 2 and 3, we can find that the income elasticity for health care is relatively higher for middle income countries than lower income countries, the middle income group shows higher responsiveness to increases in income. Our finding is consistent with Farag et al's [17] study; they obtain that the income elasticity for health care is highest for middle income countries and lowest for low income countries, with high income countries falling in the middle. From Figures 2 and 3, we can observe that the income elasticity is less than one in lower income African countries, while the income elasticity is close to unity in middle income African countries.…”

“…Since the seminal paper by Newhouse [10], who observed that over 90 percent of the variation between countries in per capita health care expenditure could be explained by variations in per capita GDP, it has become popular to investigate whether the income elasticity of health care expenditure is more or less than 1. Throughout the existing research studies, Past researches in this field may be classified into three results, one found the elasticity was higher than 1 [11–14] and others believed that the elasticity was less than 1 [1, 4, 15–17], still others obtained a result that the elasticity was around one [2, 3, 18, 19]. The discrepancy of income elasticity in this literature could be attributed to a variety of reasons like using different econometric methods, different data, and explanatory variables.…”

Does health insurance decrease health expenditure risk in developing countries? The case of China

“…As shown in the third and fourth rows in Table , income and the value of durable possessions only show a weak positive effect on the probability of accessing health care. More affluent individuals show a slightly higher likelihood of using health care, which is in line with the literature that finds health care to be a necessity good in lower income countries (Farag et al ).…”

Disentangling the heterogeneous income elasticity and dynamics of health expenditure

“…Besides Newhouse's (1977) seminal paper, for example, Leu (1986), Parkin et al (1987), Gerdtham et al (1992a, b), Hitiris (1997), Roberts (2000), Mehrara et al (2010), Liu et al (2011), Hui-Kuang et al (2011 and Woodward and Wang (2012). However, Gerdtham et al (1998) estimated coefficients around 0.2-0.9, as was also found by Sen (2005), Chakroun (2010), Baltagi and Moscone (2010) and Farag et al (2012).…”