Measuring the relationship between income and NHEs

This article uses recently published time series data for the Organization for Economic Cooperation and Development countries to estimate income elasticities for health care expenditures. Several different models and alternative specifications are examined to determine the sensitivity and robustness of the estimated relationships. Income is the dominant-determinant of health care spending and longrun income elasticity for health care is significantly greater than unity. This implies that health care is a luxury good, and expenditures will tend to rise with the level of national income. There is little evidence that the degree of public finance reduces the level of health care expenditures.