Advanced seminar in Economics - Rudi Rocha (São Paulo School of Business Administration, IEPS)

We examine the link between public spending in health and health outcomes by leveraging differential exposure to a health spending reform prompted by Brazil’s 29th Constitutional Amendment, which mandated municipalities to spend at least 15% of their budget on health. We map dynamic effects on health care spending, inputs, access, outputs and outcomes. For municipalities initially spending below the mandated threshold, we find (a) large increases in health spending specifically, driven by administrative spending, infrastructure, and personnel; (b) a resulting greater supply of personnel and heath infrastructure; and (c) reductions in rates of infant mortality, though average elasticities are lower compared with previous correlational parameters. Yet, we find relevant heterogeneity in spending returns. We observe concave returns to spending, and complementarities in health production factors, with greater reductions in infant mortality where investments in infrastructure and personnel complemented each other, particularly when prioritizing factors with low baseline spending. Provided similar resource allocations, effects are eroded in high-corruption areas but substantially enhanced in regions with strong management and institutional capabilities. Our results not only provide one of the first well-identified causal parameters of the relationship between public spending in health and health outcomes, but also evidence on the chain connecting government health expenditure to health outcomes, non-linearities in healthcare production functions and the role of institutions and government capacity.