Health and Income: Theory and Evidence for OECD Countries

In this chapterwe examine whether the Solow growth model is consistent with the international variation in the standard of livingonce investmentsin educationand healthare explicitlyand simultaneouslytaken into account. Using the sample of OECD countries, we provideevidencethatthelevel of per capita income is positively affected bythe population’shealthlevel, 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 isstronger in the determinationof the level of per capita income.