Are health care functions stable? An application to the Canadian and US economies

Abstract

The paper examines the stability of the long-run health care expenditure function for the Canadian and US economies. The use of Hansen, and Gregory and Hansen statistics leads to rejection of the stability of both functions. When the instability problems are solved through the inclusion of some dummy variables, it is found that the estimation of income elasticity significantly diminishes, especially for the Canadian economy, in such a way that one can no longer accept health care spending to be a luxury good in this economy.