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

Abstract

This paper analyses the relationship between health expenditure and the way it is financed in a panel of 30 OECD countries observed annually from 1990 to 2009. 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 financed by government it becomes independent of an individual’s income, controlling for dependency rates for old and young age structure and technological progress.

Key words: Health expenditure, Drivers of health expenditure, Panel unit root tests, Panel cointegration, Cross section dependence model.
JEL: C33, H51, I10.