Policy brief

The macroeconomic implications of healthcare

Health-care systems play a crucial role in supporting human health. They also have major macroeconomic implications, an aspect that is not always prop

Publishing date
23 August 2018

Health-care systems play a crucial role in supporting human health. They also have major macroeconomic implications, an aspect that is not always properly acknowledged.

Countries spend very different amounts on healthcare, with spending in North America (Canada and the United States) more than twice as much per capita as in the European Union on average, and there are significant differences between EU countries too. Various explanatory factors such as income levels, population age structures and epidemiological profiles cannot explain the differences between countries. Decisions on the optimal level of spending should also consider various others factor, including the macroeconomic implications of health-care systems.

Whatever amount is spent on health care, it should be spent efficiently, in order not to waste resources and to improve the macroeconomic impacts. We demonstrate that there are threshold effects whereby certain quantitative indicators of health tend to improve with increased spending only up to certain amount of spending, but not further. Using a standard method to measure efficiency, data envelopment analysis (DEA), we find significant differences between countries, suggesting that not all countries use existing technologies and best practices to their full potential. This finding calls for policy responses.

Health-care systems matter for the macroeconomy because of their large size in output, employment and research. They also have direct fiscal implications in terms of the long-term sustainability of public finances, while health-care spending decisions influence short-term economic development through the fiscal multiplier effect, which is substantial. Most southern European countries cut health-care spending aggressively in recent years, likely amplifying the depth of their recessions and possibly causing hysteresis effects from long-term unemployment and reduced productivity. Fiscal consolidation strategies should aim to preserve spending items that have large fiscal multipliers, including health-care expenditures.

Health-care systems also influence labour force participation, productivity and human capital formation through various channels, and thereby have an influence on overall macroeconomic outcomes. They also play an important role in inequality, and we find that inequality of access to health care is particularly high in about one-third of EU countries, which calls for policy responses.

It is essential that discussions of health systems consider both the opportunity cost and the economic value of investing in health. Such an approach can help policymakers resist the temptation to default to the potentially inefficient status quo.

About the authors

  • Zsolt Darvas

    Zsolt Darvas is a Senior Fellow at Bruegel and part-time Senior Research Fellow at the Corvinus University of Budapest. He joined Bruegel in 2008 as a Visiting Fellow, and became a Research Fellow in 2009 and a Senior Fellow in 2013.

    From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

    Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.

  • David Pichler

    David was a research assistant at Bruegel focusing on macroeconomic related topics, fiscal and monetary policy. Before joining Bruegel, David worked as a trainee at the European Central Bank as well as at the European Investment Bank. He obtained a Master’s degree in Economics from Warwick University after completing his undergraduate programme in Economics at University of Graz, Austria.

    David has been working for the Austrian NGO Childrenplanet which supports projects in education, clean drinking water provision and health care in Cambodia. He is a native German speaker, fluent in English and has good knowledge in Spanish.

  • Yana Myachenkova

    Yana Myachenkova, a Russian citizen, works as a Research Assistant at Bruegel. She holds a Bachelor’s degree in Economics from the Higher School of Economics in Moscow, with an exchange program at the Erasmus School of Economics and visiting studies at UCLA, and a Master in Economic Theory and Econometrics from the Toulouse School of Economics (Université Toulouse 1 Capitole).

    Both Yana’s bachelor and master theses focused on answering the central questions of contract theory, using some insights from psychology and examining such topics as the emergence of the bonus culture.

    Her research interests lie in the areas of applied microeconomics. Yana is primarily interested in such research fields as Regulation, Incentives, Behavioral and Experimental Economics, Contract Theory and Industrial Organization.

    She is fluent in Russian and English, and has basic knowledge of French.

  • Nicolas Moës

    Nicolas Moës, a Belgian citizen, works as a Research Assistant in the Innovation & Competition Policy area. He holds a B.Sc. in Economics and Business Economics from Maastricht University and a M.Phil. in Economics from the University of Oxford. His master thesis focused on developing analytical solutions for collective action problems, bridging the gap between the institutional economics literature and neoclassical approaches.

    Alongside his studies, he did an internship in strategy consulting at Bain & Company and another one at a UK policy institute, developing policy recommendations for the international governance of global risks. He also founded the student NGO Economists Without Borders while in Oxford.

    Nicolas' research interests include theoretical and empirical microeconomics, notably institutional economics, innovation policy, and the impact of technology on the labor markets.He is a native French-speaker, fluent in English and persists in learning Dutch and Mandarin.

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