The relationship between healthcare expenditure and disposable personal income in the US states: a fractional integration and cointegration analysis

Abstract

This study examines the relationship between healthcare expenditure and disposable income in the 50 US states over the period 1966-2009 using fractional integration and cointegration techniques. The degree of integration and nonlinearity of both series are found to vary considerably across states, while the fractional cointegration analysis suggests that a long-run relationship exists between them in only 11 out of the 50 US states. The estimated long-run income elasticity of healthcare expenditure suggests that health care is a luxury good in these states. By contrast, the short-run elasticity obtained from the regressions in first differences is in the range (0, 1) for most US states, which suggests that health care is a necessity good instead. The implications of these results for health policy are also discussed.

Asymmetric effect of income on the US healthcare expenditure: evidence from the nonlinear autoregressive distributed lag (ARDL) approach

“…From Part I (Columns A and B), it can be seen that income has a significant positive impact on aggregate HCE both in the short run and in the long run. Our estimate of 0.81 for the long-run coefficient, i.e., income elasticity of HCE, corroborates findings of those researchers who postulated that health care is a necessity good (Parkin et al 1987;Matteo 2003;Freeman 2003;Dreger and Reimers 2005;Sen 2005;Costa i Font et al 2009;Baltagi and Moscone 2010;Tosetti, 2010, Acemoglu et al 2013;Caporale et al 2015;Murthy and Okunade 2016). Nevertheless, in order for these findings to be valid, there must exist a longrun cointegration relationship among HCE, GDP, LE, and AGE.…”

“…Among various determinants of HCE, the strong and positive relationship between HCE and income is well established in the literature (Murthy and Ukpolo 1995;Gerdtham and Lothgren 2000;Okunade and Murthy 2002;Smith et al 2009;Acemoglu et al 2013;Caporale et al 2015;Murthy and Okunade 2016). However, empirical results in the literature are conflicting, especially the size of the income elasticity of health care, which has been the subject of much debate.…”

Are Health Care Expenditures and Personal Disposable Income Characterised by Asymmetric Behaviour? Evidence from US State-Level Data

“…In another study, Narayan (2006) analyzed whether shocks have a permanent effect or a transitory effect on health care expenditure and income. Recently, Caporale et al (2015) focus on health expenditure and income proposing fractional integration techniques. All the previous analyses are based on the assumption of symmetric business cycles and linear data generating process, so that their main conclusions rely on this assumption and could not be valid under asymmetric business cycles.…”

“…Furthermore, the health spending is projected to grow at an average rate of 5.8% from 2012-2022, 1.0% point faster than expected average annual growth in the GDP. In a recent study Caporale et al (2015) summarise that the disposable income, together with other demand and supply factors such as medical technological progress or demographic trends, is one of the key drivers of healthcare demand and therefore expenditure.…”

Does the Great Recession Contribute to the Convergence of Health Care Expenditures in the US States?

“…The results obtained by these authors are mixed, although evidence of convergence is scarce. Other interesting works related with this issue are the ones of Caporale et al [8] and Zezza [9]. However, none of these previous papers deal directly with the possible effect of the Great Recession on convergence.…”