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Marginal Benefit Incidence of Pubic Health Spending: Evidence from Indonesian sub-national data Ioana Kruse Menno Pradhan Robert Sparrow June 2010 The 2010 IRDES Workshop on Applied Health Economics and Policy Evaluation The 2010 IRDES

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Marginal Benefit Incidence of Pubic Health Spending: Evidence from Indonesian sub-national data

Ioana Kruse Menno Pradhan Robert Sparrow June 2010

The 2010 IRDES Workshop on Applied Health Economics and Policy Evaluation 24-25 June 2010 –Paris –France www.irdes.fr/Workshop2010 The 2010 IRDES Workshop on Applied Health Economics and Policy Evaluation 24-25 June 2010 –Paris –France www.irdes.fr/Workshop2010

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June 2010 IRDES workshop

Motivation

  • Objectives

– How do district revenues translate into health spending? – How does district health spending benefit their populations?

  • Effectiveness of public health spending in increasing access

to health services

  • Transfer of public resources
  • Decentralization in Indonesia in 2001

– Responsibility for public service delivery with districts – Districts free in setting health budgets – Variation in district endowments, revenues and health spending but also in poverty, household constraints and access to health care

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June 2010 IRDES workshop

Existing literature: weak links in the chain

  • Cross country data shows little correlation between

health outcomes and public health spending, after controlling for income

– Governance – Crowding out

  • Within-country heterogeneity

– Cross country evidence of effect on the poor – Sub-national analysis does find evidence of effect of public spending

  • Shortcomings of cross country evidence

– Endogeneity and omitted variable bias – Measurement error: inconsistencies in data quality, data collection tools and underlying source of micro-data

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June 2010 IRDES workshop

Contribution of this paper

  • Sub-national analysis of health spending

– Similar institutional setting and data collection tools – Elasticity of health spending w.r.t. revenue – Effect of public health spending on health care utilization

  • Outpatient utilization (by provider type)
  • OOP health care spending by households

– Distributional effects

  • Test for crowding out

– Do increased public services crowd out private sector? – Does increased public spending crowd out OOP spending?

  • Marginal benefit incidence analysis

– Control for behavioral response to spending

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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?
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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?

q q

H H S B =

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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?
  • Marginal benefit incidence: who benefits from changes in spending?

q q

H H S B =

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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?
  • Marginal benefit incidence: who benefits from changes in spending?

– Relate ΔHq to ΔH – Political process driving reforms: early/late capture by the poor – Categories of spending: expansion of services, quality upgrade

q q

H H S B =

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June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?
  • Marginal benefit incidence: who benefits from changes in spending?

– Relate ΔHq to ΔH – Political process driving reforms: early/late capture by the poor – Categories of spending: expansion of services, quality upgrade

  • Consider behavioral response to changes in public spending

q q

H H S B =

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SLIDE 11

June 2010 IRDES workshop

Benefit incidence analysis

  • Interpret public spending as transfer of resources
  • Average benefit incidence: who benefits from public spending?
  • Marginal benefit incidence: who benefits from changes in spending?

– Relate ΔHq to ΔH – Political process driving reforms: early/late capture by the poor – Categories of spending: expansion of services, quality upgrade

  • Consider behavioral response to changes in public spending

q q

H H S B =         ∂ ∂ − ∂ ∂ + = ∂ ∂ = H S S H H S S H H H S B S H S H S S B

q q q q q q

1 ) ( ) ( ) (

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June 2010 IRDES workshop

Indonesia’s health spending

  • Decentralization in 2001 to districts

– Districts have legal responsibility to provide basic health care – Accountable to districts parliaments, not to central government – Free to set user fees and allocate resources

  • District health spending

– Routine expenditures: salaries and operational costs of providing public health services – Development expenditures: investments, upgrading of health facilities, training – Increased annually by 23% (in nominal terms) from 2001-2004

  • Central influence remains through

– Civil service regulations – Central health spending: social safety net, national hospitals

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June 2010 IRDES workshop

District revenues

  • Composition of district government resources in 2001

– General allocation grant (56 %) – Shared tax revenues (property and income tax 11%) – Shared non tax revenues (natural resources 12%) – District own revenues (15%) – Tied grants from center (3%)

  • Decentralization resulted in variation in budgets

– Variation in natural resource endowments – Allocation formulas for central allocation grant

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June 2010 IRDES workshop

Data

  • Panel of 207 districts from 2001 tot 2005
  • Ministry of Finance

– Detailed district revenues – Detailed district spending

  • Household survey (Susenas)

– Annual cross section; 200,000 HH/year – Representative at district level – Health care utilization, OOP health spending, demographics, socio-economic information

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June 2010 IRDES workshop

Converging spending patterns

8 9 10 11 12 Log district health expenditure (per capita) 12 12.5 13 13.5 14 14.5 Log total district revenue (per capita)

bandwidth = .8

2001

8 9 10 11 12 13 Log district health expenditure (per capita) 12 13 14 15 16 Log total district revenue (per capita)

bandwidth = .8

2004

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June 2010 IRDES workshop

Health care utilization 2002-2005

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20 0.22 2002 2005 2002 2005 2002 2005 2002 2005

Utilization rate

Public Private

Quartile 1 Quartile 4 Quartile 3 Quartile 2

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June 2010 IRDES workshop

Empirical specification

Determinants of district health spending

it t i it r rt it it

X f s R c H ε δ α γ β + + + + + + =

∑

=

) ( log log

6 2

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June 2010 IRDES workshop

Empirical specification

Determinants of district health spending Determinants of utilization and OOP

it t i it r rt it it

X f s R c H ε δ α γ β + + + + + + =

∑

=

) ( log log

6 2 it t i it dt d it it

X f s H c u ν δ α η π + + + + + + =

−

) ( log

1

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June 2010 IRDES workshop

Elasticity of public health spending

By source of revenue Routine Development Total Total district revenue 0.87** 1.05** 0.88** Interaction revenue shares Own revenue 2.03** 1.25 1.44** Shared tax revenue 0.36

  • 3.37**
  • 0.99*

Shared non tax revenue

  • 0.87
  • 0.20
  • 0.70+

DAK revenue

  • 1.11

3.08* 0.13 Revenue from other sources

  • 0.50

0.42

  • 0.29

Routine Development Total Total district revenue 0.83** 1.12** 0.88**

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June 2010 IRDES workshop

Public health spending and utilization

Public Private Total OOP District health spending 0.0114** 0.0042 0.0156**

  • 94.42

By source of spending Public Private Total OOP District health spending 0.0111** 0.0059+ 0.0170**

  • 1.40

Interaction development health spending share 0.0037

  • 0.0234**
  • 0.0197
  • 1,269.52
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June 2010 IRDES workshop

Distribution of health spending effects

Public Private Total OOP Quartile 1 (poorest) 0.0175**

  • 0.0032

0.0143+

  • 65.80

Quartile 2 0.0164** 0.0032 0.0197** 64.38 Quartile 3 0.0063 0.0005 0.0068

  • 216.31

Quartile 4 (richest)

  • 0.0055
  • 0.0048
  • 0.0104
  • 1,685.68
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June 2010 IRDES workshop

Marginal benefit incidence

θq 1 + θq – θ uq,2002 uq (1 + θq – θ ) Quartile 1 (poorest) 0.144+ 1.054 0.232 0.244 Quartile 2 0.142* 1.052 0.257 0.271 Quartile 3 0.082 0.992 0.272 0.270 Quartile 4 (richest)

  • 0.040

0.876 0.243 0.213 Overall 0.090+

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June 2010 IRDES workshop

Conclusions

  • Revenues translate into health spending

– Mainly driven by central transfers and local revenues – Center retains influential fiscal instruments

  • More spending translates into

– Higher utilization of public services by the poor – No crowding out with private services – No change in private health expenditures

  • Increased public spending improves targeting

– Net resource transfer from richest to poorest – But initial shares dominate marginal benefit

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June 2010 IRDES workshop

Health care utilization 2002-2005

Public Private Total 2002 2005 2002 2005 2002 2005 Quartile 1 (poorest) 0.063 0.069 0.058 0.053 0.122 0.122 Quartile 2 0.070 0.071 0.085 0.074 0.156 0.145 Quartile 3 0.074 0.072 0.105 0.091 0.179 0.163 Quartile 4 (richest) 0.066 0.073 0.139 0.115 0.205 0.188 Urban 0.065 0.067 0.109 0.087 0.174 0.154 Rural 0.071 0.075 0.087 0.080 0.159 0.155 Indonesia 0.068 0.071 0.097 0.083 0.165 0.155

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June 2010 IRDES workshop

The Chain

Budget health spending Services Health

State revenues Fiscal policy Governance Other binding constraints?

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June 2010 IRDES workshop

The Chain

Budget health spending Private Services Public Services: What kind? Health: Demand for health services by income groups Household behavior

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June 2010 IRDES workshop

Indonesia: 17,000 islands

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June 2010 IRDES workshop

Indonesia’s population

Province size shows the proportion of provincial population relative to national population

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June 2010 IRDES workshop

Indonesia’s economy

Province size shows the proportion of provincial GDP relative to national GDP

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June 2010 IRDES workshop

Indonesia’s fiscal decentralization

Province size shows the proportion of provincial fiscal revenue relative to national fiscal revenue