Testing for structural breaks in panel varying coefficient models: with an application to OECD health expenditure |
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Authors: | Dandan Liu Rui Li Zijun Wang |
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Institution: | 1.Department of Economics,Kent State University,Kent,USA;2.School of Economics & Management,Beijing University of Aeronautics & Astronautics,Beijing,China;3.Private Enterprise Research Center,Texas A&M University,College Station,USA |
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Abstract: | In this article, we propose a model selection approach for testing structural breaks in a semiparametric panel varying coefficient
model. Monte Carlo evidence shows that the proposed model selection approach performs well in finite sample settings. Applying
the method to an empirical data, we find evidence of structural breaks in Organisation for Economic Co-operation and Development
(OECD) health expenditure data by allowing for income elasticity to be state (income)-dependent. The relationship between
health expenditure and income is subject to two types of structural changes: smooth changes over income and structural breaks
in the time dimension. The findings hold for both foreign exchange rate-converted and Purchasing Power Parity-converted expenditure
and GDP. |
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