Financing Health Systems in Developing Countries: the Role of Government Spending and Taxation

This paper investigates the relationship between public health expenditure growth and macroeconomic determinants in 59 low-, low-middle-, and upper-middle-income countries from 2000 to 2019. The study is motivated by the need to understand how macroeconomic policies affect public health spending and the performance of health systems in these countries. To achieve this objective, the Arellano-Bover/Blundell-Bond system-GMM approach is applied on dynamic panel data by dividing the global panel into three sub-panels: full sample period, pre-global financial crisis period, and post-global financial crisis period. The results show that tax capacity and spending capacity exhibit positive impacts on public health expenditure in the full sample period and pre-global financial crisis period, respectively. Meanwhile, in the post-crisis period, public health expenditure is negatively influenced by the global financial crisis due to weak taxation capacity and high debt burden. We find that debt service burden has a positive impact on public health expenditure (% of GDP) in the full sample period and pre-global financial crisis period, respectively, while public health expenditure (% of GGE) is negatively affected by debt service burden in the post-crisis period. Furthermore, fiscal balance has a negative and significant impact on public health expenditure in all sample periods. Our analysis also shows that the rise of public health expenditures is significantly influenced by GDP per capita, population ageing, and development assistance for health. These findings have significant implications for policymakers seeking to improve health system financing and effectiveness in these countries, where governments should prioritize efforts to improve revenue and tax systems to allocate more funds towards health system financing performance.