Abstract
This paper investigates how the growth in pharmaceutical expenditures is determined. A theoretical model of the growth in pharmaceutical expenditures is analyzed and the impact of new innovative drugs on the growth of Swedish pharmaceutical expenditures is studied empirically. The result from the theoretical model is that the potential driving forces of the steady state growth in expenditures are inflation in introductory drug prices, the inflow of new innovative drugs and the increase in the underlying demand. The result from the empirical study is that introductory drug prices have,been stable durin'g this period but that new innovative drugs have opened up new markets and increased the drug consumption. An important conclusion is that the change in the drug price index is of little importance for the growth in pharmaceutical expenditures in steady state. At present, it might be necessary to reduce the access to new innovative drugs if the steady state growth rate is to be reduced.