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International Journal of Health Economics and Management

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01-12-2014

Health care expenditure decisions in the presence of devolution and equalisation grants

Authors: Rosella Levaggi, Francesco Menoncin

Published in: International Journal of Health Economics and Management | Issue 4/2014

Abstract

In a model where health care provision, its regional distribution and the equalisation grant are the result of a utilitarian bargaining between a (relatively) rich region and a poor one, a First Best solution can be reached only if the two Regions have the same bargaining power. From a policy point of view, our model may explain the observed cross-national differences in the redistributive power of health care expenditure and it suggests that to equalise resources across Regions an income based equalisation grant may be preferred because it causes less distortions than an expenditure based one.

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For a distinction between global public goods and local public goods with spillovers see Levaggi (2010).

With only two Regions, each of them either receives or pays a grant which is proportional to the total tax return of the Central Government (\(\tau _{a}Y_{a}+\tau _{b}Y_{b}\)). The proportional factor is given by the difference between \(\frac{1}{2}\) and the relative weight of the Regional income. Thus, we can write \(G_{i}=\left( \tau _{a}Y_{a}+\tau _{b}Y_{b}\right) \left( \frac{1}{2}-\frac{Y_{i}}{Y_{a}+Y_{b}}\right) \). Accordingly, the rich Region (\(\frac{Y_{a}}{Y_{a}+Y_{b}}>\frac{1}{2}\)) pays a grant to the poor Region (\(\frac{Y_{b}}{Y_{a}+Y_{b}}<\frac{1}{2}\)).

The FOCs in this case can in fact be written as: \(\frac{\partial f_{i}\left( Q_{i}\right) }{\partial Q_{i}}+\beta p_{i}=v_{i}\left( 1+\frac{1}{2}\frac{Y_{i}-Y_{j}}{Y_{i}+Y_{j}}\right) .\)

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Title: Health care expenditure decisions in the presence of devolution and equalisation grants
Authors: Rosella Levaggi
Francesco Menoncin
Publication date: 01-12-2014
Publisher: Springer US
Published in: International Journal of Health Economics and Management / Issue 4/2014
Print ISSN: 2199-9023
Electronic ISSN: 2199-9031
DOI: https://doi.org/10.1007/s10754-014-9153-x

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