The Effects of Health Spending on the Propagation of Infectious Diseases

Abstract

Unraveling the relation of health spending and outcomes between bordering jurisdictions is a first-order concern to better coordinate public health provision. In this paper, we explore the rules governing the main federal grant to Brazilian municipalities, which varies discontinuously near population thresholds, to identify the effects of a subsequent exogenous increase in local health spending on bordering towns' health inputs and outcomes. We provide evidence that 1% increase in health spending reduces hospitalization for respiratory infectious diseases by 1 to 3%. Second, we find that both the smallest and largest neighbors benefit by reducing infant and elderly mortality and hospitalization for infectious diseases. Third, the only input that significantly increases is the number of physicians, corroborating that primary care by medical professionals helps to detain the proliferation an the worsening of infectious diseases. Finally, fiscal reactions are asymmetric: small jurisdictions reduce health spending while large neighbors spend more, mainly hiring more physicians.