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.
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Notes
We would like to thank Donald G. Freeman, Sam Houston State University, for providing the dataset.
At this stage, it is important to point out that the short-run and the long-run elasticities displayed, respectively, in Tables 8 and 10 refer to two different models. Note that the \(\beta _{1}\)-coefficients presented in Table 8 refer to those based on the long-run relationship, while those in Table 10 refer to the slope and the intercept in the first differenced model. In the fractional cointegration context, we can build up a fractional VECM model as the one suggested in Johansen and Nielsen (2010, 2012), but under some strong assumptions, that are not incorporated in the present work. This is a possible direction in which our work could be extended in the future.
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Luis Gil-Alana gratefully acknowledges financial support from the Ministerio de Economía y Competitividad (ECO2014-55236). Juncal Cuñado gratefully acknowledges financial support from the Ministerio de Economía y Competitividad (ECO2014-55496). Comments from the Editor and an anonymous referee are gratefully acknowledged.
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Caporale, G.M., Cunado, J., Gil-Alana, L.A. et al. The relationship between healthcare expenditure and disposable personal income in the US states: a fractional integration and cointegration analysis. Empir Econ 55, 913–935 (2018). https://doi.org/10.1007/s00181-017-1297-3
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DOI: https://doi.org/10.1007/s00181-017-1297-3