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. 2013 Sep 23:9:43.
doi: 10.1186/1744-8603-9-43.

Does investment in the health sector promote or inhibit economic growth?

Aaron Reeves  1 , Sanjay Basu, Martin McKee, Christopher Meissner, David Stuckler
Affiliations

Does investment in the health sector promote or inhibit economic growth?

Aaron Reeves et al. Global Health. .

Abstract

Background: Is existing provision of health services in Europe affordable during the recession or could cuts damage economic growth? This debate centres on whether government spending has positive or negative effects on economic growth. In this study, we evaluate the economic effects of alternative types of government spending by estimating "fiscal multipliers" (the return on investment for each $1 dollar of government spending).

Methods: Using cross-national fixed effects models covering 25 EU countries from 1995 to 2010, we quantified fiscal multipliers both before and during the recession that began in 2008.

Results: We found that the multiplier for total government spending was 1.61 (95% CI: 1.37 to 1.86), but there was marked heterogeneity across types of spending. The fiscal multipliers ranged from -9.8 for defence (95% CI: -16.7 to -3.0) to 4.3 for health (95% CI: 2.5 to 6.1). These differences appear to be explained by varying degrees of absorption of government spending into the domestic economy. Defence was linked to significantly greater trade deficits (β = -7.58, p=0.017), whereas health and education had no effect on trade deficits (peducation=0.62; phealth= 0.33).

Conclusion: Our findings indicate that government spending on health may have short-term effects that make recovery more likely.

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Figures

Figure 1
Figure 1
Pre-recession fiscal multipliers, 1995–2007.
Figure 2
Figure 2
Adjusted pre-recession fiscal multipliers 1995–2007, by type of government spending. a. Pre-recession fiscal multipliers 1995–2007, adjusted for time dummies, 1995–2007. b. Pre-recession fiscal multipliers, 1995–2007, adjusted for interest rates, unemployment, trade balance, and domestic investment. c. Pre-recession fiscal multipliers, 1995–2007, adjusted for interest rates, unemployment, trade balance, domestic investment and time dummies.
Figure 3
Figure 3
Budgetary patterns and effects. Panel a. Heat map of budget changes in Europe. Panel b. Association of health with defence spending.
Figure 4
Figure 4
Recessionary fiscal multiplier, 2008–2010.
See this image and copyright information in PMC

References

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