Health Expenditure: Short and Long-Term Relations in Latin America, 1995-2010

Health Expenditure: Short and Long-Term Relations in Latin America, 1995-2010

Jesus Salgado-Vega (Universidad Autonoma del Estado de Mexico, Mexico) and Fatima Y. Salgado-Naime (Universidad Complutense de Madrid, Spain & Universidad Autonoma del Estado de Mexico, Mexico)
DOI: 10.4018/978-1-5225-3168-5.ch016
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This chapter explores the factors associated with the growth of total health expenditure, in addition to its main components, government health expenditure and out-of-pocket payments. Results suggest that health expenditure in general does not grow faster than gross national product (GNP). No difference is found in health expenditure between tax-based and insurance-based health financing mechanisms. The authors confirm the existence of fungibility, where external aid for health reduces government health spending and out-of-pocket payments from domestic sources. The study also finds that government health expenditure and out-of-pocket payments follow the same paths in time, but are different for countries at different levels of economic development and the same for health expenditure growth. In Latin American countries, the relationship between health expenditure and GNP per capita is positive; there is a quick adjustment in the short run to obtain long-run behavior.
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Since the seminal work by Newhouse (1977), much research has examined the relationship between health-care expenditure and GDP. Income per capita GDP has been identified as a very important factor for explaining differences across countries in the level and growth of total health care expenditure (Kleiman, 1974; Newhouse, 1977; Leu, 1986; Getzen, 2000). For Latin America, Govindaraj et al. (1997) estimated in 1990 that countries had an average per capita health expenditure of US$162; on average, countries spent 6.2% of their GDP on health. Lustig (2000) presented a particular concern, that spending on primary education and health, and spending on programs that target the poor tend to be cut back along with other government expenditure. For the case of Chile and Colombia, Homedes and Ugalde (2005) confirmed the neoliberal reforms by the International Monetary Fund (IMF) and the World Bank; they are the overt actors that promote the reforms, according to Stiglitz (2002), as privatization and decentralization do not improve the quality of health care, equity, and efficiency.

Most of the research has been performed for developed countries, Schieber and Maeda (1999) calculated income elasticity at 1.13, and higher for public spending than for private spending.. Musgrove et al. (2002) found that income elasticity of total health expenditure was between 1.133 and 1.275. Income elasticity for OOP ranged from 0.884 to 1.033, while it was between 1.069 and 1.194 for government health expenditure. Hall and Jones (2004) argued that health care is a superior good because as individuals get richer, they choose to spend a larger proportion of their income on health care, while van der Gaag and Stimac (2008) stated that income elasticity for total health expenditure was 1.09 and found that income elasticity was less than one in the Middle East and greater than one in Organisation for Economic Co-operation and Development (OECD) countries. Murthy and Okunade (2009) found that income elasticity was between 1.089 and 1.121.

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