Welfare-improving policy on medical tourism and labor productivity: A theoretical analysis

Abstract

This paper considers welfare and wage inequality effects of developing medical tourism on the host country from a theoretical point of view. Due to the competition between public healthcare provision and medical tourism, the development of medical tourism might reduce labor productivity and thus widen wage inequality via the increased wage rates of healthcare workers and decreased wage rates of production workers. In addition, the expansion of medical tourism can lower social welfare of the host country through a decline in labor productivity caused by reduced public healthcare provision. A tax-subsidy welfare-improving scheme is suggested to mitigate the unfavorable productivity effect of medical tourism on the host economy. This theoretical result fits into current empirical evidence on medical tourism.