Economic impact of government health expenditure: An application of the computable general equilibrium model to the Iran

Abstract

BACKGROUND: Considering the increase in health expenses and the government’s role in health financing, this study investigated the economic impact of increases in the share of the health sector in the government budget while taxes remain unchanged and government spending is fixed. MATERIAL AND METHODS: The economic model used in this study was a macroeconomic Computable General Equilibrium (CGE) model. This model was calibrated using a 2011 Social Accounting Matrix (SAM) Of Iran. The CGE model was solved with non-linear programming using the General Algebraic Modeling System package, version 2.50. The effect of this simulation on the government budget deficit, the production of different sectors of the economy, and the employment rate was investigated. RESULTS: Based on our fundings the elasticity of substitution in the agricultural and industrial sectors is higher than in the health and service sector. Also, the biggest decrease in production occurred in the industry, agriculture, and service sectors, respectively. With the doubling of the share of government spending in the health sector, the employment rate of this sector has increased by 40.9%, but the highest decrease in the ignition rate is related to the service sectors (−2.7%), agriculture (−0.23%), and industry (−0.14%). CONCLUSION: Increasing the share of government spending in the health sector in comparison with other sectors of the economy, provided that government spending is maintained in general, leads to a decrease in production and economic welfare. It seems that the Iranian government should seek to increase the sources of health financing and the share of government expenditures in the health sector with other ways in order to improve the health level of the society and have a positive effect on other economic sectors.