The public sector and health care

This paper specifies a model of the determinants of total expenditure on health care. The model shows how this expenditure is divided between the public and private sectors when public expenditures are chosen by majority rule. From the theoretical model I derive two equations determining the private and public expenditures on health care as shares of GDP. The equations are estimated using OECD panel data with two-way fixed effects and with simultaneous correction for heteroeskedasticity and serial correlation. The results include estimates of the price and income elasticities of public and private demands for health care as well as estimates of the crowding-out effects of public on private expenditures.