Is health care really a luxury? A demand and supply approach

Many studies have found strong and positive relationship between per capita income and health care expenditure. These studies usually adopt the assumptions that (1) the relationships among the variables are constant; and/or (2) the supply-side market for health care could be treated by using standard demand functions models. To take into account of the supply side of health care, we use the demand and supply approach with the cointegration model to re-examine this issue. By using Taiwan health care expenditure data, our results show that the real income elasticity is smaller than unity and the health care expenditures are primarily for 'curing' rather than 'caring'.