Do Local Governments Interact Fiscally with Their Neighbors in a Devolved Health Care System – A Spatial Analysis of the Philippines?

Abstract

The aim of this research is to better understand the effects of a decentralized health system of the Philippines on public health care expenditures by investigating determinants of local government public health spending for year 2007. Within the context of the Philippines’ decentralized health system and health externalities that arise at the individual-level and manifest at the regional level, particular emphasis is given to spatial spillovers and fiscal interactions among municipalities. The research addresses these issues in an empirical spatial econometric framework utilizing public finance local government data for the Philippines. Competition for health resources including doctors and drugs, thereby bidding up the costs of health inputs is one of the potential causes for positive fiscal spatial dependence cited in this paper. It is also anticipated that this could be an outcome of yardstick competition, where local agents strategically compete with each other by spending higher in order to be re-elected, 2007 being an election year.