Spending to grow or growing to spend? Relationship between public health expenditure and income of Indian states

While there are concerns about low public health expenditure in most developing countries, the evidence on the linkage between public health expenditure and income is limited. In countries such as India, where massive public health programmes have been implemented over a period that experienced high economic growth, the relationship between two is a question of interest. We examine the relationship between two at sub-national level, as decisions regarding health are prerogative of the state government. We use data on gross state domestic product and public health expenditure over 1981–2017. Using a robust version of Granger causality that produces reliable results even in presence of parameter instabilities, we find presence of non-linear and bi-directional relationship between the two variables. We report inter-state differences in the income elasticity of health expenditure. These differences can be traced to the differing institutional set up, partly rooted in the administrative decisions taken in colonial India.