The cyclicality of government health expenditure and its effects on population health

Abstract

Scholars have raised concerns that cutbacks on government health expenditure (GHE) during recessions may jeopardise population health. The present research investigates the extent to which population health outcomes are affected by responses of GHE to business cycles, i.e., cyclicality of GHE. We estimate GHE cyclicality by regressing detrended GHE on detrended gross domestic product (GDP). Our analysis of data for 1995 through 2014 from 135 developing countries shows that mean cyclicality is 0.61, or that a one percent deviation from the GDP trend is positively correlated with a 0.61 percent deviation from the GHE trend. Further, countries in which GHE is less procyclical appear to have shorter life expectancies and higher adult mortality rates. These results suggest that reducing procyclicality of GHE by protecting GHE in bad times may generate substantial health gains. Importantly, our results show that increasing the weight of social security funds in health budgets, and improving institutional quality, can be critical to breaking the procyclical pattern of GHE.

Keywords: Developing countries; Economic crisis; Government health expenditure; Health determinants; Mortality rates; Recession.