Page 122 - GHES-2-4

Global Health Economics and
Sustainability
Fiscal policy shocks and health outcomes

increase as health expenditure improves (Rezapour et al., unexpected fiscal rule (a rule that restrains government
2019; Onofrei, 2021). However, despite public budgetary spending above a pre-determined threshold) could have
allocation to the health system in SSA, health outcomes an adverse effect on health expenditure and outcomes
in the region have only responded marginally, raising (Schakel et al., 2018). The fiscal shock emanating from the
concerns about the adequacy and sustainability of health financial crisis in Greece forced the government to adopt
expenditure in improving health outcomes in the region. austerity measures, causing a reduction in public spending
with adverse effects on the structure and functioning of the
In recent times, there have been growing concerns
among policymakers in SSA about the sustainability public health system in the country (Ifanti et al., 2013).
of public financing for health systems. These concerns The adverse effect of fiscal shocks on health outcomes
arise from the cost implications of providing health care could be better appreciated by understanding how fiscal
to a growing population and the vulnerability of SSA actions affect health outcomes; therefore, various studies
fiscal operations to economic uncertainties. Economic have investigated this effect. A study on the impact of
uncertainties limit the government’s ability to generate public health expenditure on health outcomes in SSA
and allocate revenue by reducing the tax base or found that health expenditure has a significant but inelastic
taxable income, a condition known as fiscal shocks. The effect on reducing mortality rates (Arthur & Oaikhenan,
occurrence of fiscal shocks could force the adoption of 2017). In a related study on developing countries in the
austerity measures, which could produce adverse effects European Union, Onofrei (2021) found the existence of a
on the health system. For example, the financial crisis of long-run equilibrium relationship between public health
2009 in Greece forced the government to adopt austerity expenditure and health outcomes. Evidence from country-
measures, causing a reduction in public expenditure. Ifanti level studies in Nigeria suggests that an increase in public
et al. (2013) found that this reduction affected the structure health expenditure improves life expectancy and reduces
and functioning of public hospitals, leading to a shortage infant mortality rates in the long run (Edeme et al., 2017;
of drugs and medical supplies and understaffing. Health Oluwatoyin et al., 2015). In a similar study in Ghana,
promotion initiatives targeted toward disease prevention Boachie et al. (2018) found that public health expenditure
were curtailed. contributed to improvements in health outcomes. A 10%
increase in public health expenditure prevents 0.102 – 4.4
Fiscal shocks can have a profound impact on health
outcomes. Schakel et al. (2018) found a 3% reduction infant and under-five deaths per 1000 live births while
increasing life expectancy at birth by 0.77 – 47 days per year.
in health expenditure arising from fiscal shocks in 32
Organization for Economic Cooperation and Development This study’s objective is to empirically determine the
countries and that the likelihood of health expenditure effect of fiscal policy shocks on health outcomes in SSA.
reduction increased in the years following the shock. From the policy perspective, understanding the reaction
This finding is supported by those of Karanikolos et al. of health outcomes to fiscal shocks provides evidence
(2013), confirming that the strict fiscal austerity measures for developing policies that can guarantee sustained
adopted by Greece, Spain, and Portugal as a response to improvement of health outcomes in the event of such
the fiscal shocks caused by the 2008 financial crisis led to shocks. The study is timely and policy-relevant in view
recession in those economies and that its adverse effect of the COVID-19 pandemic, which has exposed the
on the healthcare systems continues to grow. There have vulnerabilities of health systems in the region, and because
been increasing incidences of suicides and outbreaks of SSA economies rely mainly on commodity export for
infectious diseases in these countries, and budget cuts have revenue, which makes them susceptible to global economic
resulted in restricted access to health care. By contrast, the uncertainties. The study contributes to the existing
crisis has had no significant effect on health outcomes in literature by highlighting the effects of fiscal policy shocks
Iceland because of its expansionary fiscal policy. on health outcomes, allowing policymakers to appreciate
the imperatives of building resilient health systems. To the
The effects of fiscal shocks on health outcomes appear to best of our knowledge, no study on the subject has been
be homogeneous, irrespective of their form of manifestation conducted in the region, creating a gap in an evidence base
or source. The effects of fiscal shocks manifesting in the form for sustainable health outcome improvement policies.
of the International Monetary Fund’s fiscal conditionalities
have been studied in 16 Western African countries. 2. Data and methods
Evidence suggests that such shock induces reduction in
government health expenditure per capita by 0.248% and 2.1. Data
impedes the achievement of universal health care (Stubbs The data for the study variables were obtained from the
et al., 2017). Fiscal shock manifesting in the form of an World Bank’s World Development Indicators database.

Volume 2 Issue 4 (2024) 2 https://doi.org/10.36922/ghes.3454