The impact of public spending on health: does money matter?

We use cross-national data to examine the impact of both public spending on health and non-health factors (economic, educational, cultural) in determining child (under-5) and infant mortality. There are two striking findings. First, the impact of public spending on health is quite small, with a coefficient that is typically both numerically small and statistically insignificant at conventional levels. Independent variation in public spending explains less than one-seventh of 1% of the observed differences in mortality across countries. The estimates imply that for a developing country at average income levels the actual public spending per child death averted is $50,000–100,000. This stands in marked contrast to the typical range of estimates of the cost effectiveness of medical interventions to avert the largest causes of child mortality in developing countries, which is $10–4000. We outline three possible explanations for this divergence of the actual and apparent potential of public spending. Second, whereas health spending is not a powerful determinant of mortality, 95% of cross-national variation in mortality can be explained by a country’s income per capita, inequality of income distribution, extent of female education, level of ethnic fragmentation, and predominant religion.