HEALTH ECONOMICS Health Econ. 16: 603–626 (2007) Published online 12 December 2006 in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hec.1186 THE RELATIONSHIP BETWEEN ROAD TRAFFIC ACCIDENTS AND REAL ECONOMIC ACTIVITY IN SPAIN: COMMON CYCLES AND HEALTH ISSUES ANTONIO GARCI ´ A-FERRER*, ARA ´ NZAZU DE JUAN and PILAR PONCELA Depto. de Ana ´lisis Econo ´mico: Economı´a Cuantitativa, Universidad Auto ´noma de Madrid, Madrid, Spain SUMMARY This paper analyses the aggregate relationships between traffic accidents and real economic activity in Spain during the last 30 years. Our general approach is based on two basic assumptions: (1) the number of accidents depends on the use of cars and other exogenous variables, and (2) the level of economic activity affects variation in the stock of cars, as well as degree of utilization. We propose a novel turning point characterization for monthly seasonal data that allows to check whether economic and road accident cycles coincide and, to date the beginning and end of their respective cycles. Empirical results from this section are important in establishing posterior causal models and whether or not economic activity and road accidents have a common component in the long run and a varying lead–lag relationship, depending on the cycles. These models will be the basis to check when Spain will achieve the European Union figures in terms of the fatalities/accidents ratio under different scenarios. Empirical results as well as historical experiences from other European countries proved that reducing fatalities is not only a question of diminishing accidents rates. Copyright # 2006 John Wiley & Sons, Ltd. Received 21 October 2005; Accepted 25 September 2006 JEL classification: I18; J28; C22; C51; R41 KEY WORDS: traffic accidents; time series analysis and unobserved component models INTRODUCTION Traffic crashes and their associated injuries and fatalities are a world public health problem. Road accidents have claimed an estimated 30 million lives in the last 100 years and, every day about 3000 people die and 30000 are seriously injured on the world’s roads (Murray and Lo´ pez, 1996). In Europe, 40 000 people die in traffic accidents every year and a further 1.7 millions are injured, directly costing some 160 billion Euros (European Commission, 2003). For male adults aged between 15 and 44, road accidents are the main cause of death, and some projections indicate that by 2020 road traffic crashes will have moved from ninth to third place in the world ranking of the burden of disease (Murray and Lo´pez, 1997). An increasing number of road accidents not only means a considerable loss of human lives but also important economic costs to society. According to the Transport Research Laboratory (TRL) figures, traffic accidents annually cost developing countries around US $53 billion. In Great Britain, for instance, estimates show that each fatal accident costs $2 665 000 while a serious casualty costs $310 000 (DETR, 2002). What these and the previous figures show is that traffic safety remains an important public and social priority issue as well as an economic challenge. As a matter of fact, economic losses in *Correspondence to: Depto. de Ana´ lisis Econo´ mico: Economı´a Cuantitativa, Av. Toma´ s y Valiente, 5. Universidad Auto´ noma de Madrid, Cantoblanco, 28049 Madrid, Spain. E-mail: antonio.garcia@uam.es Copyright # 2006 John Wiley & Sons, Ltd.