The Optimal Government Health Expenditure In China

In January,2011, the Health Department put forwarded that the percentage of government health expenditure and social health expenditure out of the total health expenditure will be increased, and the ratio of private out-of-pocket spending will be reduced to less than30%by the end of the12th Five-Year-Plan. On this account, the scale of government health expenditure will undoubtedly be expanded. Government health expenditure has long been considered as a nonproductive expenditure, which can promote the social welfare, but reduce economic growth rate. But as a kind of investment of the national health capital, this expenditure also has an obvious feature of productive expenditure. Then what’s the relationship between government health expenditure and economic growth, will government health expenditure positively impact economic growth? If both the theoretical and empirical evidences prove this positive impact, does the scale of government health expenditure in our country have measured up the optimal scale? What’s this optimal scale?In order to address the above two questions, this paper investigates the impact of government health expenditure on economic growth in China in the context of an endogenous growth model by introducing government health expenditure, and sets labor force input, physical capical input, consumption of resident and exportation as the controlled variables, in which government health expenditure has a dual role of both government public investment and human capital investment. The empirical results suggest that the positive effect of government health spending on growth can be evidenced by a government health spending elasticity with respect to GDP of0.0831, and an investment multiplier of6.04.The specification of the positive impact of government health expenditure on economic growth is just the starting point of our analysis, we need to find out the optimal scale of government health expenditure. Therefore, the fifth chapter investigates the feature of government health spending, its optimal size and fulfillment using related time series data1978-2009in China. The empirical results suggest that government health expenditure in China is productive under15%significant level; the current size of government health spending is under-provided and the optimal size is11.9%of GDP; the marginal product of government health spending relates negatively with its size; government health spending depends on itself the year before and GDP per capita. Finally, we forecast the reasonable government health expenditure2011-2020for the dynamical fulfillment of government health spending in an optimum orientation growth model.In the end, based on the theoretical analysis and empirical results, the last chapter provided five practical suggestions for the purpose of expanding government health expenditure from a fiscal perspective.