Vanderbilt University Department of Economics Working

Citation: Kevin x.d. Huang and Hui He, (2015) ''Why Do Americans Spend So Much More on Health Care than Europeans?'', Vanderbilt University Department of Economics Working Papers , VUECON-15-00003. Contact: Submitted: Apri 7, 2015. Published: URL:http://www.accessecon.com/Pubs/VUECON/VUECON-15-00003.pdf Kevin x.d. Huang [email protected], Hui He [email protected] Empirical evidence suggests that both leisure time and medical care are important for maintaining health. We develop a general equilibrium macroeconomic model in which taxation is a key determinant of the composition of these two inputs in the endogenous accumulation of health capital. In our model, higher taxes lead to using relatively more leisure time and less medical care in maintaining health. We find that difference in taxation between the US and Europe can account for a large fraction of their difference in health expenditure-GDP ratio and almost all of their difference in time input for health production. Kevin x.d. Huang Vanderbilt University Hui He Shanghai University of Finance and Economics and International Monetary