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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.

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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.

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