Fiscal Decentralization and Health Care Access and Quality: Evidence from Local Governments Around the World

In this article we consider the impact on health care access and quality when decentralizing health spending down to local governments, based on data from 49 countries around the world over the period 1996 to 2015. Our empirical results, after controlling for a range of potentially confounding variables, indicate that decentralizing health spending is inimical to timely and effective health care. We moreover explore the role of two specific channels through which fiscal decentralization can undermine health outcomes namely, externalities and foregone economies of scale. We find that decentralizing health expenditure down to the local level may generate externalities to the detriment of health outcomes when it is accompanied by locally elected municipal politicians who are not subject to national parties. Our results also suggest that fiscal decentralization can improve health access and quality when two-thirds or more of the people in a country live in localities with more than 300,000 inhabitants, implying that below this threshold economies of scale may be foregone.