Because of its policy implications, the income elasticity of health care expenditures is a subject of much debate. Governments may have an interest in subsidizing the care of those with low income. Using more than two decades of data from the Iran Household Expenditure and Income Survey, this article investigates the relationship between income and health care expenditure in urban and rural areas in Iran, a resource rich, upper-middle-income country. We implemented spline and quantile regression techniques to obtain a more robust description of the relationship of interest. This study finds non-uniform effects of income on health expenditures. Although the results show that health care is a necessity for all income brackets, spline regression estimates indicate that the income elasticity is lowest for the poorest Iranians in urban and rural areas. This suggests that they will show low flexibility in medical expenses as income fluctuates. Further, a quantile regression model assessing the effect of income at different level of medical expenditure suggests that households with lower medical expenses are less elastic.
Keywords: Iran; health expenditure; income elasticity; quantile regression.