Estimation of the Income Elasticity of Health Costs in Iran

Abstract

Estimation of the income elasticity of health costs is important in determining the policies adopted in health sector. Previous studies in this area has been done with the assumption of the model certainty; while ignoring the problem of model uncertainty can lead to bias and overlooking parameters that result is inappropriate forecasts and incorrect statistical inference. Thus, the main objective of this study is to estimate income elasticity of health costs in Iran under uncertainty of model from 1979 to 2013. For this purpose, the Bayesian approach was used because of its favorable characteristics for the assumption of model uncertainty. Estimation of 40000 regression and Bayesian averaging from the coefficients of the 24 effective variables on per capita costs of the health sector shows that per capita income is the most important determinant of these costs. The income elasticity of health costs is estimated approximately 0.7, that shows health an essential commodity in Iran. Accordingly, we propose that health services be financed by governmental budget that is necessary in health services and provision. Based on other results, the effects of urbanization, per capita public health costs, dependency ratio, physicians per capita and the unemployment rate per capita are certain and strong on health sector costs in the long run.JEL Classification: C11, I1, J2