Health expenditures in the OECD: A political economy analysis using structural breaks

A Masters Thesis, presented as part of the requirements for the award of a Research Masters Degree in Economics from NOVA – School of Business and Economics

We write this paper with the main purpose of investigating whether or not political factors influence the structural changes in health expenditure. We are not concerned about shocks as most researchers do; but instead we search for significant structural break dates and try to find a correlation between them and political changes. We choose to study health expenditure due to its relevance in terms of share on GDP and share on public expenditure and because of the continuous growth it shows over the last decades. We use probit models for our empirical tests. Public health expenditure share on GDP is found to have a statistically significant higher probability of breaking in election years which is a clear indication of possible political effects. By opposition break dates on Private health expenditure share on GDP show no correlation with elections. In addition, the probability of occurrence of breaks in public current health expenditure significantly increases in election years and the coefficients are higher and more significant in this case than the case of total public health expenditure. However, this is not verified in investment expenditure which means that elections seem to have a higher impact on short term expenses. Majority governments show a lesser probability of inducing breaks during their term in office but a higher probability before elections. Although we sometimes found statistically significant differences depending on the ideology of the respective government (i.e. left or right) we failed to achieve consistent and coherent results to allow us to establish a clear conclusion. We based our study on a data set of 23 OECD countries between the years 1960 and 2006.