Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectionally Dependent Panel

This paper analyses the relationship between health expenditure and the way it is financed using a panel of 30 OECD countries observed since the 1990s. In particular, the nonstationarity and cointegration properties between health care spending and its sources of funding, income and non-income variables are studied. This is performed in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. The findings suggest that when health care expenditure is mainly nanced by government it becomes highly inelastic, with an income elasticity much smaller than expected, controlling for dependency rates for old and young age structure and technological progress.