Heterogeneity and threshold effects of environmental regulation on health expenditure: Considering the mediating role of environmental pollution

Abstract

A comprehensive understanding of the heterogeneity and threshold effects of environmental regulation on health expenditure is essential for policy design and decision-making. This case study seeks to analyze the heterogeneity and threshold effects using panel data, which covers 30 Chinese provinces from 2007 to 2017. We examine the linear and nonlinear impacts of environmental regulation on health expenditure by using the Bayesian quantile regression and panel threshold regression, respectively. The empirical research results indicate a significant heterogeneous effect of environmental regulation on health expenditure in provinces where health expenditure falls in different quintiles. It shows mainly two effects: a positive effect of environmental regulation on health expenditure in provinces in the low quintiles and high quintiles of health expenditure; and a negative interrelationship between environmental regulation and health expenditure for provinces in the medium quintiles of health expenditure. A single threshold effect of environmental regulation on health expenditure is found to be different among three regions: the eastern, central and western regions. Specifically, in eastern and western China, the environmental regulations are stricter, and this helps reduce the health expenditures relating to environmental pollution. However, it was found that stricter environmental regulations do not reduce health expenditures in central China.

Keywords: Bayesian quantile; Environmental pollution; Environmental regulation; Health expenditure; Heterogeneity; Threshold effect.