Public Spending, Governance, and Mortality Probability in the Indian Subnational: A Two-Level Random Intercept Analysis

One of the most fundamental yet unresolved health policy issues is whether public expenditure on healthcare leads to improved health outcomes. Given that health reflects one of the critical aspects of human capital, having implications for economic growth and other development goals, there has been enormous advocacy towards investing significantly in health systems across countries to improve overall health status. However, the effect of public spending on health outcomes remains inconclusive. This paper analyses the impact of public health spending on mortality probability, taking into account the role of governance while treating public spending as an endogenous variable. The study uses individual-level data from the National Family Health Survey (NFHS) Round 5 and a few state-level characteristics. For estimation, a two-level mixed effect model is used to capture the benefit incidence of public spending on individual mortality probability. Findings reveal that public spending has a significant but differential impact on mortality across Indian States, whereas quality of governance is found to be a mediator. Given a level of public spending, states with better government effectiveness and rule of law can translate public health spending more effectively in reducing mortality at the individual level. The study also found heterogeneous mortality status across gender, location of residence, wealth status, and age groups with differential impact of public spending across gender, wealth, and age groups. Variation in average distance of mortality probability level in each state from the overall mean indicates states face very different health challenges. Policy options call for state-specific health interventions rather than one-size-fits-all health policies. There needs to be more unconditional grants/transfers from the Union Government to States so that states can tailor policy responses to address unique challenges. Simultaneously, states need to adopt output-based conditions with greater flexibility to deliver services and greater accountability to improve transparency, governance quality, and implementation capacity.