Public vs. Private Health Spending in Inclusive Growth: A Structural Model Analysis

Promoting inclusive growth, which is economic progress that reduces poverty and inequality, remains a core objective of development policy across various country contexts. However, growth alone does not guarantee equitable outcomes. Public health spending plays a crucial role in determining whether economic gains are distributed equally among income groups. This study examines the impact of public and private health expenditures on the interrelated dynamics of economic growth, income inequality, and poverty. Specifically, it asks: to what extent do different health financing mechanisms affect inclusive growth, and how do these effects vary across country income groups? To address this question, we construct a system of three simultaneous equations that capture the relationships between growth, inequality, poverty, and health expenditures (both public and private), estimated using the three-stage least squares (3SLS) method. Our analysis is based on a balanced panel of 117 countries spanning the period from 2000 to 2021. Our results indicate that public health expenditure has a positive contribution to inclusive growth, particularly by reducing inequality and poverty. These effects are most pronounced in emerging and lowincome economies. By contrast, heavy reliance on out-of-pocket (OOP) payments is associated with weaker poverty reduction and rising inequality. This research contributes to the literature by integrating health financing into the analysis of inclusive development. The findings underscore the need for policy strategies that strengthen the redistributive capacity of health systems as a foundation for sustainable and equitable growth.