What is it about?
Does health expenditure decentralization improve a nation’s health? Should countries care about governance quality when they decentralize healthcare spending to local governments?
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Why is it important?
Approximately half of public health services have been decentralized on average across 75 countries from 1972 to 2019. During the COVID-19 pandemic, local governments’ role in providing healthcare services has become more visible and important amid more attention to governance and corruption issues. Although health expenditure decentralization could potentially improve national health outcomes through better public healthcare services based on local medical needs, it is necessary to study whether this holds empirically, whether this depends on the quality of governance, and how fiscal decentralization and governance interact.
Perspectives
We find that health spending decentralization worsens health outcomes, which are offset by better governance of government. We calibrate the maximum feasible degree of health expenditure decentralization to have positive effects on health outcomes for a given percentile distribution of governance quality. Countries should be mindful of this negative consequence of health spending decentralization and should ensure that the quality of their governance exceeds a certain threshold to offset this negative externality. We also find that vertical fiscal imbalance is negatively associated with health outcomes, underscoring the role of revenue decentralization in improving the fiscal discipline of local governments by avoiding moral hazard caused by soft budget constraints and the common pool problem.
Dr. Ryota Nakatani
International Monetary Fund
Read the Original
This page is a summary of: Health Expenditure Decentralization and Health Outcomes: The Importance of Governance, Publius The Journal of Federalism, August 2023, Oxford University Press (OUP),
DOI: 10.1093/publius/pjad031.
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