Public health expenditure, fiscal space, and economic growth: A cross-country panel analysis
The relationship between public health expenditure and economic growth remains contested, particularly in the post-pandemic context of mounting fiscal pressures. While the human-capital framework predicts positive growth benefits from health investment, recent evidence points to heterogeneous, conditional effects. This study examines whether the growth impact of domestic general government health expenditure is moderated by fiscal space—proxied by public debt and the primary balance—across income levels. Using a strongly balanced cross-country panel drawn from the World Health Organization Global Health Expenditure Database, fiscal space database, and the World Bank World Development Indicators, the analysis combines within-country fixed effects, Driscoll–Kraay standard errors, and two-step System Generalized Method of Moments. A higher share of public health expenditure is, on average, associated with lower gross domestic product growth, but this association is strongly conditioned by fiscal space: higher public debt deepens the negative relationship, whereas a stronger primary balance attenuates it. The effect is concentrated in high- and upper-middle-income economies and is statistically negligible in lower-middle- and low-income countries. System Generalized Method of Moments diagnostics support instrument validity. Overall, the findings indicate that the growth impact of public health spending depends jointly on a country’s level of development and fiscal space, underscoring the need for expenditure-efficiency and fiscal-management reforms rather than higher spending alone.
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