Cross-country disparities in health-care expenditure: a factor decomposition

This note investigates the sources of international differences in the levels of per capita health-care expenditure, using data on the OECD countries between 1975 and 2003. To that end, we use Theil's second measure of inequality for decomposing cross-country disparities in per capita health-care expenditure into the contributions of various factors: health-care expenditure expressed as a share of GDP, labour productivity, employment rate, activity rate and the ratio of working-age population to total population. Our results show that cross-country differences in the share of GDP devoted to health-care expenditure and labour productivity are the main determinants of the level of dispersion in per capita health-care expenditure. On the contrary, existing disparities in the remaining explanatory factors considered play a less relevant role in this context. In any event, the analysis performed reveals that the overall inequality in per capita health-care expenditure decreased throughout the study period. This was due to the process of international convergence observed in most of the factors used to break down the level of per capita health-care expenditure.