More with Less? Fiscal Decentralisation, Public Health Spending and Health Sector Performance

Abstract

Decentralisation is considered a panacea for deficient public sector performance by many. However, recent trends of health sector recentralisation in several OECD countries suggest the opposite. Taking on a cross-country perspective, I examine two hypotheses, namely that decentralisation leads to an increase in public health spending (H1) and to poor health sector outcomes (H2). The evidence I present suggests that decentralising spending tends to lead to larger public health sectors and to poorer health sector outcomes. However, decentralising tax authority has no effect on the size of the health sector and may actually have a positive effect on health sector performance. The broader lesson is that while general fiscal decentralisation research tends to imply that its conclusions are valid for all policy areas in a similar way, sector-specific insights can reveal a more nuanced view on the consequences of fiscal decentralisation.