Environmental considerations and the financing of healthcare: Evidence from sixteen European countries

Abstract

The results of empirical work on the relation between health expenditure and environmental quality invariably show that environmental degradation has a positive effect on health expenditure, in the sense that more resources are allocated to healthcare to combat the effect of environmental degradation on health. In this paper, the relation between environmental degradation and health expenditure is examined by using data on 16 European countries. The analysis is conducted by using simulation, mathematical derivation and empirical testing using ARDL, FMOLS and non-nested model selection tests. The results reveal that in all cases the relation between per capita health expenditure and CO2 emissions is significantly negative and that in some cases the addition of income per capita as an explanatory variable does not make much difference. Negative correlation between health expenditure and environmental degradation is explained in terms of the environmental Kuznets curve and expenditure on environmental protection.