Is it reasonable to subsidize healthcare in Developing Nations? A question purely from the growth perspective

Chaudhuri, Sarbajit (2015): Is it reasonable to subsidize healthcare in Developing Nations? A question purely from the growth perspective.

Abstract

The paper purports to examine the rationale in subsidizing healthcare in the developing economies solely from the standpoint of economic growth with the help of a three-sector, full-employment small economy model with exogenous labour market imperfection and a non-traded sector providing healthcare services. Consumption of healthcare services emanates positive externalities and raises the efficiency of workers. There is provision for providing public subsidy on the consumption of health services. The analysis finds that the socially optimal consumption subsidy on health is not necessarily positive and crucially hinges on factors like degree of labour market imperfection, quality of services provided by the healthcare sector and its production technology. These results lead to a few important policy implications in the context of the developing countries. Finally, this analysis provides a theoretical justification why the magnitude of public spending on healthcare services is significantly lower in the developing countries vis-à-vis the developed nations.

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumption externality; healthcare; efficiency of labour; health subsidy; social welfare; developing countries; general equilibrium
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models; D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

Cevik, S. and Tasar, M.O. (2013): ‘Public spending on health care and health outcomes: cross-country comparison’, Journal of Business, Economics and Finance 2(4), 82-100.

Khan, M.A. (2007): ‘The Harris-Todaro hypothesis’, PIDE-Working papers, no. 16, Pakistan Institute of Development Economics.

Musgrove, P. (1999): ‘Public spending on health care: how are different criteria related?’, Health Policy 47, 207–223.

Self, S. and Grabowski, R. (2003): ‘How effective is public health expenditure in improving overall health? A cross-country analysis’, Applied Economics 35, 835-845.

The World Bank (2014): World Bank Indicators. See also http://data.worldbank.org/indicator/SH.XPD.PUBL.ZS