Determinants of State level Financing of Health: Evidence from Southern Indian States

Using a panel data set for four southern Indian states for the period 1993-94 to 2007-08, the paper empirically examines the important factors determining states’ expenditure on health and observes whether health is a luxury. Double log multiple panel regression equations have been specified for analysis. Feasible generalized least square estimator has been employed to estimate the coefficients with the option of first order panel specific auto-regressions. Per capita aggregate health expenditure and per capita expenditure on medical and public health are alternatively regressed on a set of explanatory variables like per capita GSDP, percapita central transfers from centre, infant mortality rate, population and number of primary health centres. The findings suggest that the change in health spending of the southern Indian states seems to have been determined by the states’ resource capacity, availability of resources in terms of central transfers and due to the pressure from demand side factor like rise in infant mortality rate. The health is not luxury in Indian context, as the income elasticity of aggregate health expenditure is found to be 0.697. The paper calls for strengthening states’ resource capacity, reprioritising budgetary allocation and more specific purpose central grants for increasing states spending on health .