Health system efficiency and democracy: A public choice perspective

Due to increasing demand and scarce financial resources for healthcare, health system efficiency has become a major topic in political and scientific debates. While previous studies investigating determinants of health system efficiency focused primarily on economic and social influence factors, the role of the political regime has been neglected. In addition, there is a lack of formal theoretical work on this specific topic, which ensures transparency and logical consistency of arguments and implications. Using a public choice approach, this paper provides a rigorous theoretical and empirical investigation of the relationships between health system efficiency and political institutions. We develop a simple principal-agent model describing the behavior of a government with respect to investments in population health under different political regimes. The main implication of the theoretical model is that governments under more democratic regimes put more effort in reducing embezzlement of health expenditure than non-democratic regimes. Accordingly, democratic countries are predicted to have more efficient health systems than non-democratic countries. We test this hypothesis based on a broad dataset including 158 countries over the period 1995-2015. The empirical results clearly support the implications of the theoretical model and withstand several robustness checks, including the use of alternative indicators for population health and democracy and estimations accounting for endogeneity. The empirical results also indicate that the effect of democracy on health system efficiency is more pronounced in countries with higher income levels. From a policy perspective, we discuss the implications of our findings in the context of health development assistance.