Abstract:
Current evidence on the convergence of health care expenditures across the US states
into a single convergence club is non-existent. Against this backdrop, we revise this
issue using a modified panel unit root test that accounts for smooth structural changes
spanning the period of 1966-2009. The results illustrate that the ratio of the individual
health care expenditures relative to the cross-sectional average is broken
trend-stationary, not only in the aggregate panel, but also across all 50 US states, as
indicated by a sequential panel selection method. In addition, the findings also
document that the evidence of convergence in health care expenditures is possibly due
to the convergence of personal disposable income across the US states. These results
are expected to have important policy implications for the US health care market.
