The relationship between health expenditure, income, and environmental degradation: Evidence from OECD economies

Abstract

This study investigates the relationship between health expenditure and its selected determinants using data for 38 OECD economies from 2000 to 2019. The set of explanatory variables includes those that have played a particularly significant role in influencing demand for health expenditure in recent years, i.e. income level, environmental deterioration, and population ageing. In this study, to explore these relationships, the Method of Moments Quantile Regression (MMQR) approach is applied, complemented by Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) techniques. Furthermore, the Dumitrescu and Hurlin panel causality test is used to assess the causal relationships. The main scientific contribution of this study is the identification of the varying effects of environmental quality, income level and advanced population ageing on health expenditure across different quantiles. The findings are supported by robustness checks, which confirm the reliability and validity of the results. The estimated long-run income elasticities are less than 1, indicating that health is a necessity in OECD economies. Environmental deterioration and population ageing show positive relationships with health expenditure. Moreover, the unidirectional causality between changes in all analysed determinants and change in health expenditure is confirmed. The results provide valuable insights for health economics. The findings indicate that contemporary changes in the area of ​​demographics, environment, and well-being strongly influence the demand for health services, and policymakers should carefully monitor the changes and adapt the structure of health services to achieve sustainable development.