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

Author(s): João Medeiros, Christoph Schwierz, European Commission

Estimating the drivers and projecting long-term public health expenditure in the European Union: Baumol's "cost disease" revisitedpdf(2 MB) Choose translations of the previous link  

Summary for non-specialistspdf(38 kB) Choose translations of the previous link 

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.

(European Economy. Economic Papers 507. October 2013. Brussels. PDF. 32pp. Tab. Bibliogr. Free.)

KC-AI-13-507-EN-N (online)
ISBN 978-92-79-32334-8 (online)
doi: 10.2765/54565 (online)

JEL classification: C53, H51, I12

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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