Relations between health care expenditure and income: an application of local quantile regressions

Abstract

In this article, local relationship between per capita health care expenditure (HCE hereafter) and GDP is investigated with local quantile regressions. Logarithmic per capita GDP and HCE of 154 countries in 2001 and 25, 50 and 75% quantile regressions are considered. Three main findings are obtained from our empirical study. First, conditional distribution of per capita HCE on GDP is asymmetric. For lower GDP countries, the conditional distribution is skewed to the right which means less health care tends to be consumed. On the contrary, the conditional distribution is skewed to the left which implies more health care is apt to be consumed for high GDP countries. Second, variance of the conditional distribution is larger when per capita GDP is low and smaller when per capita GDP is high. This confirms the necessity of restricting the sample observations to OECD countries for holding the homogeneity of HCE when the conditional mean is considered. Third, whether health care is ‘necessary’ or ‘luxury’ depends on the level of per capita GDP. For 50% quantile, the income elasticity is significant >1 when per capita GDP is greater than US$ 1882 (ln(1882) = 7.56), which indicates that health care becomes luxury for countries with per capita GDP higher than US$ 1882. For 75% quantile, the elasticity is significantly >1 and health care becomes luxury for countries with per capita GDP higher than US$ 1737 (ln(1737) = 7.46). As to 25% quantile, the elasticity is significantly >1 and health care becomes luxury for countries with per capita GDP higher than US$ 1920 (ln(1920) = 7.56). These results indicate that health care is a necessity for 37 countries with per capita income lower than $ 1920 and is luxury for other countries.