^aDepartment of Business Administration, National Cheng Kung University, 1, University Road, Tainan, Taiwan

Correspondence: Yung-Ming Shiu, E-mail: yungming@mail.ncku.edu.tw

Abstract

Unlike prior studies, we consider not only population ageing but also life expectancy as demographic variables that may explain the variations in health care expenditure. Cointegration techniques are employed to re-examine the effect of demographic changes on the Taiwan health care expenditure from 1960 to 2006. We find that the Taiwan health care expenditure, income, population ageing, life expectancy and the number of practicing physicians have statistically significant and long-run economic relationships. All variables have a positive impact on health care expenditure besides life expenditure. Our empirical results support the compression of morbidity hypothesis, suggesting that older people become healthier than in the past and that health care expenditure would decrease with life expectancy. Several implications for policymaking and future research are offered.