Income and health spending: Evidence from oil price shocks

Daron Acemoglu*, Amy Finkelstein, Matthew J. Notowidigdo

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

95 Scopus citations

Abstract

Health expenditures as a share of GDP in the United States have more than tripled over the past half-century. A common conjecture is that this is a consequence of rising income. We investigate this hypothesis by instrumenting for local area income with time series variation in oil prices interacted with local oil reserves. This strategy enables us to capture both partial equilibrium and local general equilibrium effects of income on health expenditures. Our central income elasticity estimate is 0.7, with 1.1 as the upper end of the 95% confidence interval, which suggests that rising income is unlikely to be a major driver of the rising health expenditure share of GDP.

Original languageEnglish (US)
Pages (from-to)1079-1095
Number of pages17
JournalReview of Economics and Statistics
Volume95
Issue number4
DOIs
StatePublished - 2013

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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