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Estimating the drivers and projecting long-term public health expenditure in the European Union: Baumol's "cost disease" revisited

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Listed:
  • João Medeiros
  • Christoph Schwierz

Abstract

This study assesses the relative importance of demographic versus non demographic drivers of health expenditure (HE), and makes long term projections for the HE to GDP ratio. This paper breaks down public HE in its drivers for European Union countries. Baumol's "unbalanced growth model" suggests that low productivity growth sectors, such as health services, when facing an inelastic demand curve result in a rising expenditure to GDP ratio. Although national income and relative prices of health are found to be important determinants of public HE, significant residual growth persists, inter alia, reflecting the impact of omitted variables, such as technological progress, and policies and institutions. Consequently, in order to obtain sensible long term projections, it is necessary to make (arbitrary) assumptions on the future evolution of a time drift/residuals.

Suggested Citation

  • João Medeiros & Christoph Schwierz, 2013. "Estimating the drivers and projecting long-term public health expenditure in the European Union: Baumol's "cost disease" revisited," European Economy - Economic Papers 2008 - 2015 507, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0507
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    Cited by:

    1. Manabu Nose, 2017. "Estimation of drivers of public education expenditure: Baumol’s effect revisited," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 512-535, June.
    2. Atanda, Akinwande & Reed, W. Robert, 2020. "Not Evidence for Baumol's Cost Disease. A replication study of Hartwig (Journal of Health Economics, 2008)," International Journal for Re-Views in Empirical Economics (IREE), ZBW - Leibniz Information Centre for Economics, vol. 4(2020-1), pages 1-10.
    3. Devdatta Ray & Mikael Linden, 2020. "Health expenditure, longevity, and child mortality: dynamic panel data approach with global data," International Journal of Health Economics and Management, Springer, vol. 20(1), pages 99-119, March.
    4. Akinwande Atanda & W. Robert Reed, 2019. "Not Evidence for Baumol’s Cost Disease," Working Papers in Economics 19/05, University of Canterbury, Department of Economics and Finance.
    5. Vitor Castro, 2017. "Pure, White and Deadly… Expensive: A Bitter Sweetness in Health Care Expenditure," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1644-1666, December.
    6. Carsten Colombier & Thomas Braendle, 2018. "Healthcare expenditure and fiscal sustainability: evidence from Switzerland," Public Sector Economics, Institute of Public Finance, vol. 42(3), pages 279-301.
    7. Hartwig, Jochen, 2020. "Not Evidence for Baumol’s Cost Disease. A Reply to Atanda and Reed (International Journal for Re-Views in Empirical Economics, 2020)," International Journal for Re-Views in Empirical Economics (IREE), ZBW - Leibniz Information Centre for Economics, vol. 4(2020-3), pages 1-4.
    8. Hofmarcher, Maria M. & Festl, Eva & Bishop-Tarver, Leslie, 2016. "Health sector employment growth calls for improvements in labor productivity," Health Policy, Elsevier, vol. 120(8), pages 894-902.
    9. Jochen Hartwig & Jan-Egbert Sturm, 2014. "Robust determinants of health care expenditure growth," Applied Economics, Taylor & Francis Journals, vol. 46(36), pages 4455-4474, December.
    10. Werding, Martin, 2016. "Modellrechnungen für den vierten Tragfähigkeitsbericht des BMF [Simulations for the 4th Sustainability Report]," FiFo Reports - FiFo-Berichte 20, University of Cologne, FiFo Institute for Public Economics.
    11. Braendle, Thomas & Colombier, Carsten, 2017. "Healthcare expenditure projections up to 2045," MPRA Paper 104737, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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