The income elasticity of health care spending in developing and developed countries

  • Marwa FaragEmail author
  • A. K. NandaKumar
  • Stanley Wallack
  • Dominic Hodgkin
  • Gary Gaumer
  • Can Erbil


To date, international analyses on the strength of the relationship between country-level per capita income and per capita health expenditures have predominantly used developed countries’ data. This study expands this work using a panel data set for 173 countries for the 1995–2006 period. We found that health care has an income elasticity that qualifies it as a necessity good, which is consistent with results of the most recent studies. Furthermore, we found that health care spending is least responsive to changes in income in low-income countries and most responsive to in middle-income countries with high-income countries falling in the middle. Finally, we found that ‘Voice and Accountability’ as an indicator of good governance seems to play a role in mobilizing more funds for health.


Income elasticity Governance Developing countries 

JEL Classification

I15 I18 F01 H51 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Asfaw A. (2005) Innovations in health care financing: New evidence on the prospect of community health insurance schemes in the rural areas of Ethiopia. International Journal of Health Care Finance and Economics 5: 241–253PubMedCrossRefGoogle Scholar
  2. Baltagi B. H., Wu P. X. (1999) Unequally spaced panel data regressions with Ar(1) disturbances. Econometric Theory 15(06): 814–823CrossRefGoogle Scholar
  3. Barros P. P. (1998) The black box of health care expenditure growth determinants. Health Economics 7: 533–544PubMedCrossRefGoogle Scholar
  4. Blomqvist A. G., Carter R. A. L. (1997) Is health care really a luxury good?. Journal of Health Economics 16: 207–229PubMedCrossRefGoogle Scholar
  5. Bokhari F. A. S., Gai Y., Gottret P. (2007) Government health expenditures and health outcomes. Journal of Health Economics 16(3): 219–325CrossRefGoogle Scholar
  6. Chauvet, L., & Guillaumont, P. (2008). Aid, volatility and growth again. UNU-WIDER Research Paper No. 2008/78.Google Scholar
  7. Cremieux P.-Y., Ouellette P., Pilon C. (1999) Health care spending as determinants of health outcomes. Health Economics 8(7): 627–639PubMedCrossRefGoogle Scholar
  8. Cullis J. G., West P. A. (1979) The economics of health: An introduction. New York University Press, New York, p 309Google Scholar
  9. Culyer, A. (1988). Health care expenditures in Canada: Myth and reality; past and future. Canadian Tax Paper No. 82, Canadian Tax Foundation, Toronto.Google Scholar
  10. Di Matteo L. (2003) The income elasticity of health care spending: A comparison of parametric and nonparametric approaches. The European Journal of Health Economics 4(1): 20–29PubMedCrossRefGoogle Scholar
  11. Di Matteo L., Di Matteo R. (1998) Evidence on the determinants of Canadian provincial government health expenditures: 1965–1991. Journal of Health Economics 17: 211–228PubMedCrossRefGoogle Scholar
  12. Dreger, C., & Reimers, H.-E. (2005). Health care expenditures in OECD countries: A panel unit root and cointegration analysis. IZA DP No. 1469.Google Scholar
  13. Enthoven A. (1980) Consumer choice health plan: The only practical solution to the soaring cost of medical care. Addison-Wesley, Reading, MAGoogle Scholar
  14. Folland S., Goodman A., Stano M. (2004) The economics of health and health care (4th ed.). Prentice Hall, Upper Saddle River, NJGoogle Scholar
  15. Freeman, D. G. (2003). Is health care a necessity or a luxury? Pooled estimates of income elasticity from US state-level data. Applied Economics, 35, 495–502.CrossRefGoogle Scholar
  16. Gbesemete K. P., Gerdtham U.-G. (1992) Determinants of health care expenditure in Africa: A cross-sectional study. World Development 20: 303–308CrossRefGoogle Scholar
  17. Gerdtham U., Sogaard J., Andersson F., Jonsson B. (1992) An econometric analysis of health care expenditure: A cross-section study of the OECD countries. Journal of Health Economics 11(1): 63–84PubMedCrossRefGoogle Scholar
  18. Gerdtham U.-G., Löthgren M. (2000) On stationarity and cointegration of international health expenditure and GDP. Journal of Health Economics 19: 461–475PubMedCrossRefGoogle Scholar
  19. Gerdtham U.-G., Löthgren M. (2002) New panel results on cointegration of international health expenditure and GDP. Applied Economics 34: 1679–1686CrossRefGoogle Scholar
  20. Getzen T. E. (2000) Health care is an individual necessity and a national luxury: applying multilevel decision models to the analysis of health care expenditures. Journal of Health Economics 19: 259–270PubMedCrossRefGoogle Scholar
  21. Getzen T., Poullier J.-P. (1992) International health spending forecasts: Concepts and evaluation. Social Science and Medicine 34(9): 1057–1068PubMedCrossRefGoogle Scholar
  22. Hansen P., King A. (1996) The determinants of health care expenditure: A cointegration approach. Journal of Health Economics 15: 127–137PubMedCrossRefGoogle Scholar
  23. Helmut H., Theilen B. (2003) The determinants of health care expenditure: Testing poling restrictions in small samples. Health Economics 12(2): 113–124CrossRefGoogle Scholar
  24. Hitris T., Posnett J. (1992) The determinants and effects on health expenditure in developed countries. Journal of Health Economics 11: 173–181CrossRefGoogle Scholar
  25. Jewell T., Lee J., Tieslau M., Strazicich M. C. (2003) Stationarity, health expenditures and GDP. Evidence from panel unit root tests with heterogeneous structural breaks. Journal of Health Economics 22: 313–323PubMedCrossRefGoogle Scholar
  26. Kleiman E. (1974) The determinants of national outlay on health. In: Perlman M. (ed) The economics of health and medical care. Macmillan, LondonGoogle Scholar
  27. Leu R. (1986) The public–private mix and international health care costs. In: Culyer A., Jonsson B. (eds) Public and private health services. Blackwell, LondonGoogle Scholar
  28. Lindert K., Skoufias E., Shapiro J. (2005) How effectively do public transfers in Latin America redistribute income?. The World Bank, Washington, DCGoogle Scholar
  29. Maxwell R. J. (1981) Health and wealth: An international study of health-care spending. Lexington Books, Lexington, MA, p 179Google Scholar
  30. Mishra, P., & Newhouse, D. L. (2007). Health aid and infant mortality. IMF Working Paper 07/100.Google Scholar
  31. Musgrove, P., Zeramdini, R., Carrin, G. (2002). Basic patterns in national health expenditure. Bulletin of the World Health Organization, 80(2), 134–146.PubMedGoogle Scholar
  32. Newhouse J. P. (1977) Medical care expenditure: A cross-national survey. Journal of Human Resources 12: 115–125PubMedCrossRefGoogle Scholar
  33. Newhouse J. P. (1992)   Medical care costs: How much welfare loss?. Journal of Economic Perspectives 6(3): 3–21PubMedGoogle Scholar
  34. Newhouse, J. P. (2006). Commentary on Getzen’s “aggregation and the measurement of health care costs”. Health Research and Educational Trust. doi: 10.1111/j.1475-6773.2006.00559.x.
  35. Parkin D., McGuire A., Yule B. (1987) Aggregate health care expenditures and national income: Is health care a luxury good. Journal of Health Economics 6: 109–127PubMedCrossRefGoogle Scholar
  36. Plumper, T., & Troeger, V. E. (2005). The estimation of time-invariant variables in panel analyses with unit fixed effects. Max-Planck-Institute for Research into Economic Systems, Jena, Germany.Google Scholar
  37. Sen A. (2005) Is health care a luxury? New evidence from OECD data. International Journal of Health Care Finance and Economics 5: 147–164PubMedCrossRefGoogle Scholar
  38. Spithoven A. H. G. M. (2009) Why U.S. health expenditure and ranking on health care indicators are so different from Canada’s. International Journal of Health Care Finance and Economics 9: 1–24PubMedCrossRefGoogle Scholar
  39. Tosetti, E., & Moscone, F. (2007). Health expenditures and income in the United States. University of Leicester Working Paper No.07/14.Google Scholar
  40. Weisbrod B. A. (1991) The health care quadrilemma: An essay on technological change, insurance, quality of care, and cost containment. Journal of Economic Literature 29: 523–552Google Scholar
  41. WHO. (2003). Guide to producing National Health Accounts 2003. Accessed 3 Oct 2008.
  42. WHO. (2008). National Health Accounts. Accessed 20 July 2008.

Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • Marwa Farag
    • 1
    Email author
  • A. K. NandaKumar
    • 2
  • Stanley Wallack
    • 2
  • Dominic Hodgkin
    • 2
  • Gary Gaumer
    • 3
  • Can Erbil
    • 4
  1. 1.School of Public HealthUniversity of SaskatchewanSaskatoonCanada
  2. 2.The Heller School for Social Policy and ManagementBrandeis UniversityWalthamUSA
  3. 3.School of Nursing and Health SciencesSimmons UniversityBostonUSA
  4. 4.International Business School (IBS)Brandeis UniversityWalthamUSA

Personalised recommendations