Browsing by Author "Costa, Sofia Moura da"
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- Baumol’s cost disease in the health care sectorPublication . Costa, Sofia Moura da; Evrin, AlperenThe concern for the impact of the Health Care costs in private and public spending has been increasing because of its effect on the country’s financial stability. Therefore, several drivers of Health Care Expenditure have been studied. However, one of its most relevant drivers is Baumol’s cost disease. Baumol (1967) defines the cost disease as the difference between the wage growth in the overall economy and productivity growth in the services sector, such as the health care sector. This excess in wages causes the unit costs in the health care sector to increase over time. In order to understand if there is enough margin for policymakers to establish effective policies to control for the rise in health care costs, this thesis studies the impact of Baumol’s cost disease in this sector in OECD countries. To do so, I define an instrument, the adjusted Baumol variable, to measure Baumol’s cost disease and apply it to a panel data set containing 18 OECD member countries from 1970 to 2016. The results found show that the adjusted Baumol variable is explaining from 20% to 80% of the increase in Health Care expenditure, depending on the definition of the Baumol sector. These results may imply that policymakers still have some margin to implement policies since the rise in Health Care expenditure is partially explained by Baumol’s cost disease.