The impact of decentralization of health services on health outcomes: evidence from Canada

Abstract

This article contributes to the limited empirical literature on the impact of decentralization on economic welfare by investigating the hypothesis that shifts towards more fiscal decentralization in health services would be accompanied by improvements in population health. Building on a conventional public finance model applied to health care, this hypothesis is tested on a panel data of the highly decentralized Canadian provinces during the period 1979 to 1995. The results of the exploratory empirical analysis presented in this article suggest that fiscal decentralization of health services in Canada has had a positive and substantial influence on the effectiveness of public policy in improving a population's health over the period studied.

Acknowledgements

I am most grateful to Peter C. Smith for the helpful comments that led to a substantial improvement of the article. I also wish to thank David Epstein and the members of the Health Econometrics and Data Group (HEDG) at York for their valuable comments and suggestions. Finally, I would like to thank Pierre Crémieux, Pierre Ouellette and Patrick Petit for providing me with the Canadian smoking data employed in this article, and Fundación Ramón Areces (Madrid, Spain) for their generous funding.

Notes

¹In this study, decentralization is synonymous with devolution because it is merely concerned with the impact of political decentralization. Devolution is a political reform designed to promote autonomy at the local level. (See Hunter et al. (1998, pp. 311–13) for a detailed classification of the different types of decentralization, namely, deconcentration, delegation and devolution.)

²In 1996, a set of measures were passed in the United States that replaced highly regulated matching grants to the states for various welfare programmes by a system of block grants with few strings attached.

³One of the reasons for this is that decentralized governments have more freedom in implementing new production methods, whereas the central government would not embark in a new production technique unless it has gained acceptance in all the local areas. The increased competitiveness among the local governments when one of them implements a new production method that turns out to be superior might also serve as a stimulus to innovation (King, 1984).

⁴Public goods and services incorporating substantial spillover effects are assumed to be inadequately provided by decentralized levels of government, as they entail a potential for free-riding behaviour which might result in an inefficient level of provision.

⁵This time frame is determined by the availability of comparable data on health transfers (Section V).

⁶Yukon, Northwest territories, Nunavut.

⁷The WCB are province-based institutions in Canada that provide employed people with financial and health care assistance following work-related injuries or diseases (Marchildon, 2005).

⁸Data on smoking prevalence are generated on the basis of a number of health surveys administered by Statistics Canada (Crémieux et al., 2007).

⁹These include veterans, native Canadians living on reserves, military personnel, inmates of federal penitentiaries and the Royal Canadian Mounted Police.