A Dynamic Relationship between Environmental Degradation, Healthcare Expenditure and Economic Growth in Wavelet Analysis: Empirical Evidence from Taiwan

Abstract

This paper analyzes the co-movement and causal linkages between environmental pollution and healthcare expenditure, taking economic growth as a control variable by using wavelet analysis for Taiwan over the period 1995 Q1–2016 Q4. The results show that there exists co-movement and causality between environmental pollution and healthcare expenditure at different frequencies and times. The changes in the relationships of the two variables are observed in certain events such as the period of the expansion stage, the policy of environmental pollution, and the issue of the National Health Insurance Integrated Circuit card (NHI-IC) in Taiwan. In the short-term, positive causality runs from healthcare expenditure to environmental pollution before 2004, while negative causality runs from healthcare expenditure to environmental pollution before 2007 in the long-term. After adding economic growth as a control variable, positive causality runs from healthcare expenditure to environmental pollution in the period 2009–2011 in the short-term, while negative causality running from healthcare expenditure to environmental pollution is shown in 2008 in the long-term. The results indicate that “higher government health expenditure leading to higher demand for environment quality” exists in different sub-periods and the argument may concern the factor of economics in the long-term. The positive healthcare lead in the short-term may be based on economics in the expansion stage. Also, the issue of NHI-IC possibly affects the dynamic relationship between healthcare expenditure and environmental pollution without considering economics. Based on empirical analysis, certain policy and managerial implications are addressed for decision-makers at macroeconomic and microeconomic levels.