Econometric analysis of the long-run relationship between preventive care spending and mortality: evidence from OECD countries, 1970–2019

While the share of health spending from public sources dedicated to preventive care has increased, the extent to which this preventive care spending can reduce mortality is still uncertain, mainly since effects may occur only in the long run. This paper takes advantage of a recent econometric method to empirically examine the long-run relationship between mortality and public preventive care spending in 37 OECD countries from 1970 to 2019. We construct an unbalanced longitudinal dataset on all-cause mortality and public preventive spending from publicly available OECD datasets. We detect cointegration and cross-sectional dependence in our data. This leads us to use the dynamic common correlated effects (DCCE) panel error correction model from Chudik and Pesaran (2015) to address these issues and account for heterogeneity across OECD countries. Our results indicate a long-run preventive care spending elasticity of $$-$$ - 0.10 in the OECD, and Granger non-causality tests suggest this may be a causal effect of spending on mortality. We also find that the long-run preventive care spending elasticity is of +0.04 for life expectancy at age 65. To better understand mechanisms, we explore the subcategories of preventive care spending and find that early disease detection programs and immunization programs drive the mortality reduction. To compare with other government health expenditures, we run our models using inpatient and outpatient healthcare expenditures as predictors and find the long-run association with mortality is less consistent. Overall, our findings indicate that higher preventive care spending may help reduce mortality in the long run in OECD countries, but this relationship is likely small.