Is Post‐Communist Health Spending Unusual?

What factors determine a country's spending on health? And what factors determine the share of spending financed by the public sector? Taking these factors into account, is post‐communist health spending unusual? For the OECD economies, we find that per capita health spending is strongly related to per capita income, with an elasticity of about 1.5. The elasticity for developing economies is close to one. Spending is also positively related to the elderly dependency rate, but the relationship is weaker than a static comparison of spending by the elderly and non‐elderly would suggest. Even though health spending as a share of GDP in the post‐communist countries of eastern and central Europe is below the OECD average, there is evidence of above normal health spending in most countries when we control for income and demographics. For Hungary, the ‘excess’ spending reached over three percentage points of GDP in 1994. For the OECD sample, four development indicators account for half the variation in the public sector share of total health spending. Political variables help explain the remainder. If the post‐communist countries converge to the market economy pattern, the share of public financing will fall, yet still remain well above half.