This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period . In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both crosssection dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.Key Words: Health expenditure, income elasticity, cross section dependence, heterogeneous panels, factor models. Abstract This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period . In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through …xed e¤ects in a panel homogeneous model and through a panel heterogeneous model. Our …ndings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.JEL Classi…cation: C31, C33, H51