Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174848
Authors: 
Erixon, Fredrik
Van der Marel, Erik
Year of Publication: 
2011
Series/Report no.: 
ECIPE Working Paper 05/2011
Abstract: 
The last 40 years have seen a rapid increase of government expenditures on public welfare arrangements. Increasing healthcare expenditures form a significant part of these outlays, and its share of total government expenditure has risen rapidly. This paper argues that the determinants of growth in healthcare expenditure are partly to be found in the way healthcare is organised. As economist William Baumol noted already in the 1960s, personalized services can easily fall into a stagnation trap characterized by rapidly increasing cost inflation. Healthcare today shows clear signs of being a "stagnant personal service" with poor productivity levels compared to other services such as telecommunication. As a result, healthcare inflation is far higher than the standard inflation rate, creating high real costs that push up the expenditure for healthcare. Consequently, we argue for reforms in the organisation of healthcare provisions to reduce the sector's productivity lags in European countries and to reap the benefits that emanates from integration with other markets.
Subjects: 
healthcare
inflation
Baumol's disease
trade in services
JEL: 
I11
I12
I18
H51
Document Type: 
Working Paper
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