Abstract
This paper investigates the relationship between health care expenditure, income, and other factors that are not related to income for China with pooled cross-section and time series data. To study the stationarity property of these variables, we use panel Lagrange Multiplier (LM) unit root tests that allow for structural changes. To perform the LM unit root tests, we employ finite-sample critical values derived through the bootstrap method, instead of relying on the critical values from the asymptotic normal distribution. An important finding based on the estimated panel cointegrated regressions is that the government budget deficits have a significant long-run impact on China's health care expenditure. This provides supportive evidence on the differences between rich and poor areas in China's health care financing policy, and the substantial disparities in health service coverage in China.
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