Estimation the Income Elasticity of Per Capita Health Care Expenditure in D8 Countries: PSTR and MG Approaches

Economic welfare is highly dependent on the health expenditure share of national output. In this regard, the purpose of this paper was to investigate the relationship between health expenditure and economic welfare in D8 countries and assessment of commodity group of health expenditure in this countries.
In order to investigate the relationship between health expenditure and economic welfare in D8 countries during 1995-2014, Panel smooth transition regression method was used. Also to verify the long- run relationship between variables and for selection kind of commodity group Panel mean of group method was used.
Moreover, considering one transition function and one threshold parameter, as a two regime model, is sufficient to specification of nonlinear relationship between variables. The results indicate that threshold value is 7.21 and the estimated slope parameter is 17.56.
GDP per capita in the first (The linear part) and second regimes (The sum of the linear and nonlinear parts) has positive impact on health expenditure per capita in D8 countries. The public health costs of population 0-14 and 65-years and older group has negative effects in first regime, and after crossing a threshold and enter the second regime, has positive effects on health expenditure per capita in D8 countries. Finally the results of the PMG approach suggests that the income elasticity of health goods in D8 countries is less than the unit and it is not considered a luxury commodity.