Previous research that has investigated the relationship between income and Health Care Expenditure (HCE) assumes that the effect of income variation on HCE is symmetric. Additionally, while HCE consists of twelve different types of health services, most of the studies have only focused on the relationship between income and aggregate HCE. By applying the linear ARDL approach, introduced by Pesaran et al. Bounds testing approaches to the analysis of level relationships. J Appl Econom 16(3):289-326 ( 2001), this study expands the literature by estimating the income elasticity of HCE for all types of healthcare services. Our findings imply that while for some health services income elasticity is below unity, for some other services health spending tends to grow faster than GDP. We also applied the non-linear ARDL approach of Shin et al. Festschrift in honor of Peter Schmidt (2014), for the first time in the literature, to examine if the adjustment of income variation follows a non-linear path. This paper provides statistically significant and robust evidence that the effect of income variation on healthcare expenditure is not symmetric, despite what previous studies assume. Keywords Healthcare expenditure • Nonlinear ARDL • Asymmetric effect • Income elasticity of health care JEL Classification H51 • I10 B Mehdi Barati

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PurposeThe purpose of this study is to first assess how the US healthcare financing system is influenced by income variation. Then, it examines whether or not the impact of income variation is asymmetric.Design/methodology/approachFor the analyses of this paper, the autoregressive distributed lag (ARDL) model is implemented to a data set covering the period from 1960 to 2018.FindingsThe results provide evidence that major funding sources of aggregate healthcare expenditure (HCE) respond differently to changes in income. The results also imply that the effect of income is not always symmetric.Originality/valueMany studies have attempted to identify the relationship between income and HCE. A common feature of past studies is that they have only focused on aggregate HCE, while one might be interested in knowing how major funders of aggregate HCE would be affected by changes in income. Another common feature of past studies is that they have assumed that the relationship between income and HCE is symmetric.