Fiscal Decentralization and Health Care Access and Quality: Evidence from Local Governments around the World

Abstract

Abstract In this article, we consider how decentralizing health spending to local governments affects health care access and quality. Based on data from forty-nine countries around the world from 1996 to 2015, we find that decentralizing health spending is inimical to timely and effective health care. We also explore the role of two specific channels through which fiscal decentralization can undermine health outcomes: externalities and foregone economies of scale. We find that decentralizing health expenditure to the local level may generate externalities to the detriment of health outcomes when it is accompanied by locally elected municipal politicians who are not subject to national parties. Our results further suggest that fiscal decentralization can improve health access and quality when approximately two-thirds or more of the people in a country live in localities with more than 300,000 inhabitants, implying that below this threshold economies of scale may be foregone.