Published in:
Open Access 01-12-2013 | Research
Does investment in the health sector promote or inhibit economic growth?
Published in: Globalization and Health | Issue 1/2013
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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.