Preferences towards Health Care: Is Health a Luxury Good?

Brigitte Dormont, Joaquim Oliveira Martins, Florian Pelgrin and Marc Suhrcke

in Ageing, Health, and Productivity

Published in print November 2010 | ISBN: 9780199587131
Published online January 2011 | e-ISBN: 9780191595370 | DOI:
Preferences towards Health Care: Is Health a Luxury Good?

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This chapter investigates empirically the relation between GDP growth and health expenditures. Since Newhouse (1977) an extensive empirical literature has sought to assess whether health care is a luxury (income elasticity above one) or a necessity (elasticity below one). This is still an unsettled issue, which is unfortunate since most projections of future expenditures rely on assumptions regarding this elasticity. An income elasticity greater than one implies that consumers' preferences drive health expenditure above income growth and could explain the increase in the share of health care in GDP.

Keywords: ageing; GDP growth; health expenditure; public policy

Chapter.  6154 words. 

Subjects: Macroeconomics and Monetary Economics

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