Journal
EMPIRICAL ECONOMICS
Volume 57, Issue 2, Pages 631-652Publisher
PHYSICA-VERLAG GMBH & CO
DOI: 10.1007/s00181-018-1561-1
Keywords
Unit root; Cointegration; Fourier approximation; Healthcare expenditure; OECD
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This paper studies stationarity and cointegration of healthcare expenditure (HE) and GDP for a sample of OECD countries. In particular, we employ newly developed unit root and cointegration tests which approximate an unknown number of smooth structural shifts in the low-frequency components of a Fourier expansion. The new unit root test indicates that HE and GDP are non-stationary. In the presence of a number of smooth shifts in the cointegration regression, our empirical results support the existence of stochastic comovement between HE and GDP in 14 out of 20 OECD countries. In addition, we examine the income elasticity of HE for the countries that we found cointegration relationship between HE and GDP. We found 13 out of 14 countries with income elasticity of HE higher than 1, which implies that health care is a luxury good.
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