Where Is Health Spending Taking Us?

kenteegardin (CC BY-SA 2.0)

Health spending in the U.S. is on the rise, and the government may deal with this in any number of ways that affect economic growth and welfare.

Elwin Tobing and Jau-Lian Jeng, both of Azusa Pacific University, published “Long-Run Growth and Welfare Effects of Rising US Public Health Expenditure” on May 9, 2012 in Public Finance Review. To see more OnlineFirst articles, click here.

The abstract:

The continuing increase of the US public health spending would inevitably lead to a reduction in productive government spending, higher taxes, or both. If the government enacts any of the policies, to what extent would the rising health care spending affect the long-run economic growth and welfare? Using an endogenous growth model where investment in education is the driving force of growth, our quantitative analysis shows that if health is a consumption good, such policies will reduce long-run growth and welfare. To finance public health spending at 20 percent of gross domestic product (GDP), a policy that simultaneously reduces productive government spending and raises tax rates could decrease the long-run growth by 0.7 percentage points and welfare by 14 percent. When health is both consumption and productive good, this policy reduces long-run growth and welfare modestly.

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