new health reform started in 2009 has shown the determination of the Chinese
government, especially the central government, to increase its responsibility
in the health sector. The most obvious manifestation of this commitment would
be to increase government health expenditure (GHE). But there is still a hot
debate about whether the government should allocate more public finds to health
or just deepen the marketization of the health sector. Moreover, commitments at
the central and local levels are not the same: local government responsibility for
GHE is high, and commitments by the central government to increase GHE have not
translated into increases in local government GHE as much as proposed in the
national health reform.
Our research seeks to answer two
questions: What was the actual pattern of GHE? And why did China’s local
governments respond as they did? We first discuss the necessity of
public financing for health care, and then analyze how intergovernmental
economic competition affects local governments’ behavior under “Chinese-style
decentralization” (known as fiscal decentralization with political
centralization). Empirically, we apply a dynamic panel data model to provincial
panel data from 1991 to 2007 to identify the effect of GHE on health performance in each province over time, using infant mortality and some morbidity metrics as
health performance variables. We also examine differences across regions, as
well as before and after the Severe Acute Respiratory Syndrome (SARS) epidemic
Our analysis provides evidence that Chinese-style
decentralization negatively impacted GHE. The main findings are as follows:
- Increasing GHE did improve health performance, and this improvement was mainly
driven by the GHE through the health department directly, not
through spending by other governmental departments that also impact health.
However, pursuit of economic performance lowered local governments’ GHE, mainly
by decreasing GHE through local health departments.
- Compared with in the
eastern and western regions, this health improvement was not significant in China’s
middle regions, where the intergovernmental economic competition leads to much
less GHE through health departments.
- The outburst of SARS in 2003 further
increased the positive effect from GHE through local health departments, while
the effect from GHE through other departments was not equally significant.
these results suggest that adjusting the structure of public health financing,
reforming the fiscal system, and improving the performance evaluation system for
local governments are critical for the success of China’s on-going health