Out-of-pocket health payments: a catalyst for agricultural productivity growth, but with potentially impoverishing effects in Senegal

Abstract

This paper analyzes the relationship between health expenditures and productivity in Senegal by using a dynamic recursive computable general equilibrium (CGE) model that has been run from 2011 to 2020. This model links the growth rate of agricultural productivity to household investment in health goods taking into account catastrophic health payments considered as barriers to achieve maximal productivity gains. In fact, despite being a potential catalyst for productivity, out-of-pocket health expenditures can be a burden after a critical threshold has been crossed and might potentially decrease household resources and place constraints on the productivity-generating process. Results show a positive impact on poverty reduction when the Government reduces the burden on households by financing catastrophic payment overshoots. Lower health costs also appear to improve households’ well-being, especially in the case of agricultural households. These results suggest the need for policies which will reduce the health system’s reliance on out-of-pocket payments and demonstrate that health programs should reach the most vulnerable households. The effectiveness of poverty-orientated interventions can be increased by targeting households incurring catastrophic health expenditures.