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Open Access Highly Accessed Research

Does investment in the health sector promote or inhibit economic growth?

Aaron Reeves1*, Sanjay Basu23, Martin McKee3, Christopher Meissner4 and David Stuckler13

Author Affiliations

1 Department of Sociology, University of Oxford, Manor Road Building, Manor Road, Oxford OX1 3UQ, England

2 Stanford Prevention Research Center, Department of Medicine, Stanford University, Palo Alto, CA, USA

3 London School of Hygiene & Tropical Medicine, Department of Public Health and Policy, 15-17 Tavistock Place, London WC1H 9SH, UK

4 Department of Economics, University of California Davis, Davis, USA

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Globalization and Health 2013, 9:43  doi:10.1186/1744-8603-9-43

Published: 23 September 2013

Abstract

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.

Keywords:
Health spending; Government spending; Economic growth