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Public-Private Mix of Health Expenditure: A Political Economy Approach and A Quantitative Exercise

Author

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  • Shuyun May Li
  • Solmaz Moslehi
  • Siew Ling Yew
Abstract
This paper constructs a simple overlapping generations model to examine how the choice of public and private health expenditure is affected by preferences and economic factors under majority voting. In the model, agents with heterogeneous income decide how much to consume, save, and invest in private health care, and vote for the income tax to be used to finance public health. Agents.survival probabilities are endogenously determined by a CES composite of public and private health expenditure. For the two special cases that public and private health are complements or perfect substitutes, we show that the voting equilibrium is unique and locally stable. For the general case, we calibrate the model to Canadian data to conduct a quantitative analysis. Our results suggest that the public-private mix of health expenditure is quite sensitive to the degree of substitutability between private and public health and the relative effectiveness of public and private health. Using a sample of advanced democratic countries, we further infer these two parameters and construct the shares of public health in total health expenditure for each country, and find that the predicted values match the data quite well.

Suggested Citation

  • Shuyun May Li & Solmaz Moslehi & Siew Ling Yew, 2012. "Public-Private Mix of Health Expenditure: A Political Economy Approach and A Quantitative Exercise," Monash Economics Working Papers 11-12, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2012-11
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    1. Alice sanwald & Engelbert Theurl, 2014. "What drives out-of pocket health expenditures of private households? - Empirical evidence from the Austrian household budget survey," Working Papers 2014-04, Faculty of Economics and Statistics, Universität Innsbruck.

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    More about this item

    Keywords

    Public-private mix; Health expenditure; Majority voting; Overlapping generations model;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I1 - Health, Education, and Welfare - - Health

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