HEALTH ECONOMICS Health Econ. 18: S137–S146 (2009) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hec.1511 REGIONAL INEQUALITY IN CHINA’S HEALTH CARE EXPENDITURES

This paper has two parts. The first part examines the regional health expenditure inequality in China by testing two hypotheses on health expenditure convergence. Cross-section regressions and cluster analysis are used to study the health expenditure convergence and to identify convergence clusters. We find no single nationwide convergence, only convergence by cluster. In the second part of the paper, we investigate the long-run relationship between health expenditure inequality, income inequality, and provincial government budget deficits (BD) by using new panel cointegration tests with health expenditure data in China’s urban and rural areas. We find that the income inequality and real provincial government BD are useful in explaining the disparity in health expenditure prevailing between urban and rural areas. In order to reduce health-spending inequality, one long-run policy suggestion from our findings is for the government to implement more rapid economic development and stronger financing scheme