Health and income: Theory and evidence for OECD countries

Abstract

In this chapter we examine whether the Solow growth model is consistent with the international variation in the standard of living once investments in education and health are explicitly and simultaneously taken into account. Using the sample of OECD countries, we provide evidence that the level of per capita income is positively affected by the population’s health level, here proxied by the life expectancy at birth. Public expenditure on health affects indirectly the level of per capita income through its positive effect on life expectancy. Using a Finite Mixture approach, we also show that richer countries are those in which the impact of unobserved factors on the level of per capita income is stronger.