Macroeconomic fluctuations and the prioritization of healthcare funding by local governments: longitudinal evidence from 5461 Brazilian municipalities

Abstract

Securing sufficient healthcare funding remains a critical challenge for many low- and middle-income countries (LMICs), especially during periods of economic instability. While economic growth often boosts health system finances in LMICs, little is known about how local governments adjust healthcare spending in response to macroeconomic fluctuations, particularly during recessions. This study analyses a longitudinal dataset of 5461 Brazilian municipalities between 2004 and 2017, using fixed-effect panel regressions to examine the relationship between municipal Gross Domestic Product (GDP) changes and healthcare spending. There is a positive elasticity between the economic conditions, measured by GDP, and municipal financial expenditures, particularly health and social expenditures. A 1% increase in municipal GDP per capita was associated with a 0.06% [95% confidence interval (CI) 0.04–0.09] increase in total municipal expenditures and a 0.12% (95% CI 0.06–0.18) increase in health and sanitation expenditures. However, during recessions, municipal governments reduced health expenditures, particularly for capital investments. Municipalities with lower income per capita and lower private insurance coverage were more vulnerable to these cuts in economic downturns. We find suggestive evidence that the cuts in poorer municipalities and in municipalities relying disproportionately on federal transfers were more pronounced for social and health expenditures, although the difference between municipalities is small. These findings highlight the sensitivity of local finances to economic fluctuations, underscoring the need for policies that protect healthcare funding during economic downturns.