Public Spending, Governance, and Mortality Probability in the Indian Subnational: A Two-Level Random Intercept Analysis

ABSTRACT: One of the most fundamental yet unresolved health policy issues is whether public expenditure on healthcare leads to improved health outcomes. Given that health reflects one of the critical aspects of human capital, having implications for economic growth and other development goals, there has been enormous advocacy towards investing significantly in the health systems across the countries to improve the overall health status. However, the effect of public spending on health outcomes remains inconclusive. The present paper analyses the impact of public health spending on mortality probability, taking into account the role of governance while treating public spending as an endogenous variable. The study uses individual level data from the National Family Health Survey (NFHS) Round 5 and a few state-level characteristics. For estimation purpose, it uses a two-level mixed effect model to capture the benefit incidence of public spending on Individual mortality probability. The findings reveal that public spending has a significant but differential impact on mortality across the Indian States, whereas the quality of governance is found to be a mediator. Given a level of public spending, States with better government effectiveness and rule of law can translate public health spending more effectively in reducing mortality at the individual level. The study also found heterogeneous mortality status across gender, location of stay, wealth status, and age groups with a differential impact of public spending across gender, wealth, and age groups. The variation in average distance of mortality probability level in each state from the overall mean mortality probability indicates that the states are very different in terms of health challenges that they are facing. The policy options call for state-specific health interventions to reduce the mortality rather than one-size-fits-all health policies. There needs to more unconditional grants/transfers from the Union Government to the States so that states will be able to tailor policy responses to address the unique challenges faced by the respective states. At the same time, states need to adopt output-based conditions with greater flexibility to deliver services and greater accountability to improve transparency, governance quality, and implementation capacity.