Does Misery Index Matter for the Persistence of Health Spending? Evidence from OECD Countries

This paper employs the panel smooth transition regression (PSTR) model to investigate the role of Okun’s misery index in the persistence of health spending in 19 OECD countries from 1980 to 2010. The empirical result shows that the health spending in the sample countries displays a nonlinear dynamic path and a high level of persistence. Compared to the constant persistence of the health spending in the linear model, the persistence effect in our constructed PSTR model depends on one-period lagged Okun’s misery index, which varies with time and across countries. In addition, there is a trade-off for the governments of 19 OECD countries to lower misery index and suppress the growth of health spending. In particular, the negative impact of one-period lagged misery index on the persistence is increasing (decreasing) when one-period lagged misery index is below (above) its threshold value (i.e., 11.1333 %). Finally, a high persistence of health spending means that current health spending is less disturbed by current shocks. Thus, revising health care system is more efficient than improving macroeconomic conditions for a government to suppress the growth in health spending.