The propagation of public health spending shocks

ABSTRACT

We study the dynamic response of output to a shock to government health spending. The shock (i) leads to an immediate and persistent rise in output and (ii) has a sizable explanatory power for the long-run variation in output. These findings suggest that the output effects of health spending are propagated in a ‘time-release’ fashion.

KEYWORDS:

• Health spending
• vector autoregressions
• health outcomes

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ These data come from the World Development Indicators database provided by the World Bank (https://databank.worldbank.org/source/world-development-indicators).

² National Center for Health Statistics (https://www.cdc.gov/nchs/fastats/older-american-health.htm) and Verbrugge (1984): https://www.jstor.org/stable/pdf/3349861.pdf.

³ Institute for Health Metrics and Evaluation (http://ghdx.healthdata.org/gbd-results-tool?params=gbd-api-2017-permalink/3c0ee862905ade1c81d9dba0447a18c6).

⁴ Jakovljevic, Getzen, and Jakovljevic (2016), Jakovljevic et al. (2021a), and Jakovljevic et al. (2022) find that health spending has generally been on the rise globally.

⁵ Evidence of a link between health spending and GDP growth in the U.S. and other countries has been documented by Jakovljevic et al. (2020), and Jakovljevic et al. (2021b).

⁶ $Y_{1t}$ does not contain an $s$ subscript because variables in it are invariant across states.

⁷ That is, the additional dollar increase in output from an extra dollar increase in public health spending.

⁸ In our sample,$h/y=0.0431$ and $r=0.0513$.

⁹ Output responses to shocks to the other variables not shown because they are not surprising. See Atems and Blankenau (2022) for those responses and discussion.