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Bailing out expectations and public health expenditure

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Author Info
Bordignon, Massimo
Turati, Gilberto

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Abstract

We use a "natural experiment", the fiscal adjustment of Italy in the 1990s to meet the Maastricht criteria, to test a simple model of soft budget constraint that closely resembles the intergovernmental relationships in the Italian public health care sector. We show that the link between the ex-ante financing by the Central government and the health expenditure by regions was stronger when regional expectations of future bailing outs were presumably lower. Confirming previous research, we also prove that more fiscally autonomous regions were more financially responsible and that a political "alignment" effect was present, with "friendly" regional governments controlling more expenditure than unfriendly ones. Our results suggest that, at least in Italy, bailing out expectations by regions may be the missing variable emphasised by [Culyer A.J., 1988. Health care expenditures in Canada: Myth and reality. Canadian Tax Papers, 82] for empirical models explaining health expenditure. Our results also raise some worries about the outcome of the current decentralization process in Europe.

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Publisher Info
Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 28 (2009)
Issue (Month): 2 (March)
Pages: 305-321
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Handle: RePEc:eee:jhecon:v:28:y:2009:i:2:p:305-321

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Health care expenditure Intergovernmental relationships Soft budget constraint;

Cited by:
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  1. Giardina, Emilio & Cavalieri, Marina & Guccio, Calogero & Mazza, Isidoro, 2009. "Federalism, Party Competition and Budget Outcome: Empirical Findings on Regional Health Expenditure in Italy," MPRA Paper 16437, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-12-3.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.