Canadian Public Policy

Does Health-Care Spending Crowd out Other Provincial Government Expenditures? Author(s): Stuart Landon, Melville L. McMillan, Vijay Muralidharan, Mark Parsons Source: Canadian Public Policy / Analyse de Politiques, Vol. 32, No. 2 (Jun., 2006), pp. 121-141 Published by: University of Toronto Press on behalf of Canadian Public Policy Stable URL: http://www.jstor.org/stable/4128724 . Accessed: 27/12/2010 02:37
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Does Out

Health-Care Spending Crowd
Other
Provincial Government

Expenditures?
L. LANDONANDMELVILLE McMILLAN STUART

of Department Economics University Alberta of Alberta Edmonton,
VIJAYMURALIDHARAN

of Department RuralEconomy University Alberta of Alberta Edmonton,
MARK PARSONS

of Department Finance Government Canada of

se de Les ddpenses santd,qui constituent plus grande la provinciaux, partiedes depensesdes gouvernements des au sont accruesconsiddrablement cours de la derniered cennie. L'on a soutenuque l'augmentation ' ' les d6pensesde sant6a conduitles gouvernements r6duire d6pensesdestindes d'autrestypes de services allantde 1998/89 au En pourla pdriode gouvernementaux. utilisantune sdriede donnues, niveauprovincial, a 2003/04, notreetudea pu testerl'hypotheseque les d6pensesde sant6ont fait obstaclea d'autrestypesde d penses. Les r6sultats indiquent que, pourla pdriode6tudiee,il n'y a aucunepreuveque l'accroissement ait de sant6des gouvernements des ddpenses provinciaux fait baisserle niveaudes d6pensesdestinees'a et d'autrescategoriesde produits servicesfournisparles gouvernements. overthe has of Healthspending,the largestcomponent provincial spending, risen significantly government to have caused provincialgovernments decade. It has been assertedthat largerhealth expenditures past datafor the period1988/ services.Using a panelof province-level less on othertypes of government spend 89 to 2003/04, this studyprovidesa test of the hypothesisthathealthspendinghas crowdedout othertypes of spending.The resultsindicatethat,for the periodstudied,thereis no evidencethatincreased provincial resultedin lower levels of spendingon other categoriesof government health expenditures government providedgoods and services.

CANADIAN PUBLIC POLICY - ANALYSE DE POLITIQUES, VOL. XXXII, NO. 2 2006

social services. Mindingthe PublicPurse. p.. 36 dollars so "Health carehas grabbed manymarginal that your governmentshave been unable to fund othervital obligations. p..but has picked up sharplysince then. 2 2006 PUBLIC POLICY ANALYSE POLITIQUES. per Healthis the largestsingle item in the budgetsof all provincesand.and 122 StuartLandon.329. Antunes and McIntyre2001.From1974/75 to 2003/04.so to that increasesin health spendingare perceivedto be a threatto othertypes of program spending.XXXII. healthexpenditures grewfromjust under 29 percentto almost 37 percentof provincial government program spending.MelvilleL.4 in importance provincial in budgets.andotherprogram spending.." post-secondary JaniceMackinnon. 25 April2003 costs of healthcare "Inthe late 1990s . Frank2003.. healthcosts . health spendingrose from 5.5 abated The upward trendin healthexpenditures in the periodof fiscal restraint the earlyand during mid-1990s.5 government of (GDP)." PaulMartin quotedby JeffreySimpsonin The Globeand Mail.VijayMuralidharan MarkParsons "Healthcare spendingcontinuesto be the pacman budgets.2The purposeof this study is to examine the crowding-outhypothesis empirically. are on 'crowdingout' otherspendingneeds. For one.9 percent annumandtotalrevenuesgrewby 4." TheEconomist. the spiraling of their capacityto innovateor sappedprovinces such as fund adequately otherkey responsibilities. and Jacksonand McDermott 2004).while was total provincialexpenditures grew by 4.NO. CANADIAN . educationand infrastructure. FinancialPost. health spending education as surpassed spending thelargestexpenditure category for all levels of government in INTRODUCTION The health-care has out ment spending crowded gov- in viewthatthegrowth provincial govern- on ernment expenditures othertypes of goods and In to servicesis widespread. For example. provincial tially.. McMillan. the RomanowCommissionreportstates:"In addressthat deficitin healthfunding. 229 Institute to "According Hugh Segal of Montreal's for Research PublicPolicy .education. Lazarand St-Hilaire2004..69). a 111 percentincrease(2. Ruggeriand Yu 2003.. Whilethe existenceor potential for crowdingout appears be widely accepted.the annual growthin provincial healthexpenditures 7. as of 1997/98.6 percent.. The (Canada the out potentialfor crowding underlies discussions DE VOL. September 2004 11.0 to 6. addition the statements above.27 September 2003.." eatingup the rest of provincial Don Drummond.The analysis addressesthe impactof healthspendingon totalnon-health provincial governmentprogramspendingas well as on specific categoriesof provincial spending. From1997/98to 2003/04. deficit ing theapparent educashouldnot be passed on to post-secondary tion andsocial assistance" 2002b. health spending has by the provincialgovernments grownsubstanBetween 1975 and 2003.whilereal product percent grossdomestic from healthspending increased percapitaprovincial to $2.1whileconcern out is raisedin the reportsof boththe KirbyCommission (Canada 2002a) and the Romanow Commission (Canada2002b). of the sustainability publichealth-care of spending that are foundin the studiescited aboveas well as in manyotherstudies(suchas Brimacombe.7 per$1.3 to the Severalfactorsappear havegenerated concern over crowdingout.102 Healthspendinghas also grown cent per annum)..5 percent. the issue of crowdingout is noted quoted sysexplicitlyin severalanalysesof the health-care for about potential crowding the tem.the that health-care expenditures have hypothesis crowdedout otherformsof provincialgovernment spendinghas not been tested.

is assumed provincial it that governments weigh the benefitsandcosts of eachtype of good and serviceto voter-taxpayers. spendingreadjustments may simply reflect in the factorsthatdetermine costs and the changes benefitsof different of expenditures thus.corrections and miscellaneous) using data for 48 states from1984to 1994.welfare [which includesMedicaid]. potentiallydifferent. For example. DE VOL. higher education. crowdingout must entaila movementin the distribution expenditures of such thatexpenditures one categoryof goodadversely on impact those of anothercategory and shift them awayfromthe optimallevel. CANADIAN PUBLIC POLICY ANALYSE POLITIQUES. core of the crowdingThe outhypothesis mustbe. especially. Following Fosset and Wyckoff (1996) and McCartyand Schmidt (1997). Thesebenefits andcosts arelikely to dependon manyfactors and facand. wouldbe of little concern. In determiningthe quantity of different goods and servicesto provide.ratherthanby tax paid reductions otherexpenditures. Brazerand McCarty(1987) examine whether. out Crowding is not simplythatbudgetshareshave changedor. when municipalities and school districtssharethe same property base.theyconcludethatMedicaid expenditures not havea significant did effect on state spendingin supportof schooling. declining birth rates may contribute a relativedeclinein education to outlays.7 government expenditures government Thathealthexpenditure grownrapidlyandis has a largershareof provincialprogram taking spending does not necessarilymeanthathealthspending is crowdingout other provincialexpenditures. and. justthathealth not hasgrown. municitax pal spending crowds out school spending overburden"). dencefromstudiesthatuse datafortheUnitedStates suggests that crowdingout of other types of governmentexpenditures health spendingmay not by be significant.6 rateof increasein provincial the recentresurgence. while a growingdemandfor postsecondary education may help to sustainthese expenditures.Rather.thatmorehas been spenton one good and less on anothersince such changes could be optimal responsesto exogenous factors to and.andformaltests of crowding surprisingly havenot been undertaken with Canadian evidata. in Twootherstudiesconsiderthe issue of crowding out.orgrownrelativeto othertypes spending of expenditures.From on depressed their analysis of expenditures 47 US states for in the 1980 to 1990 period. butdo not considercrowdingout by healthexMarlowand Shiers(1999) examinethe penditures.XXXII. Fosset andWyckoff(1996) examine whetherthe rapidgrowthin state Medicaidexpenditures statespending schooling. effect of statelaw enforcement spendingon education spending do notfinda negative and relationship between the two. tors are expected to influence the level of on expenditures differentcategoriesof goods and services. therefore.numerous. Motivated and by rapidgrowthin Medicaid corrections expenand ditures.Does Health-Care SpendingCrowdOutOtherProvincialGovernment Expenditures? 123 The health aggregate. a As result. be an issue of importance. findno evidenceof ("municipal They this type of crowdingout.especially tracted considerableattention and has prompted and aboutfuture ratesof growth speculation concern in healthexpenditures relative bothothertypesof to and revenue. athas spending. Whilethe empirical literature crowding is on out out small. the present study takes an empiricalapproach orderto determine in whether health-care growing provincial expenditures havecrowded otherprovincial out The expenditures.McCarty Schmidt(1997) examinethe effect of increasesin these two types of expenditureson six categories stategovernment of spending (schooling. thus. 2 2006 . thatthegrowthin healthspendbut ing has had a negative impact on non-health that is over and above the impactof expenditures other factors that determinenon-healthspending. types maynotbe dueto one typeof expenditure "crowding out"otherexpenditures.NO. McCartyand Schmidtfind no evidence that any type of expenditure crowds out other types of expenditures concludethat inand creasesin spending abovetrend one category in were for by additional revenues.healthandhospitals.thus.

scriptionof the expenditure The empiricalresultsare thenpresented interand Thepaperends with a briefconclusion. XXXII. haverisensignificantly.the resultsmay be biased in the directionof finding evidence of crowdingout. issueof crowding is recentandseems to be the productof the post-mid-1990ssurge in healthspending. time spanof the sampleperiodis somewhatshort. the data for spendingon all expenditures. resultsdescribed belowindicatethatthereis no evidence thathealth-care spendingcrowdedout other provincialexpenditures duringthe sampleperiod. 2 2006 CANADIAN VOL. the averageacrossprovincesof all otherexpenditures per capita fell duringthe mid-1990s before to recovering its originallevel by the end of the period.553 per capita in 1988/89 and only $1. 1988/89 is the earliest year for which Statistics Canada disaggregated currently providesconsistent databy province.In the followingsection.The decline in all from 1994/95 through1997/98 otherexpenditures was not accompanied an increasein healthexby penditures.VijayMuralidharan MarkParsons and planof thepaperis as follows.Aggregatereal per capitaprovincialexpenditures (both total and programspending)generally from1988/89through1992/93.10 the Figure1 illustrates trendsover the studyperiod in the ten-province averageof real per capita healthexpenditures all and provincialgovernment other (non-health)programexpenditures. types EMPIRICAL ANALYSIS ProvincialGovernment Data Expenditure and Trends data Theanalysisemploysa panelof province-level for the period 1988/89 through2003/04.8 Nonare bothas healthprogram expenditures considered an aggregate (All Other Expenditures) and disaggregatedinto three categories. datacreatea suthe to perioropportunity revealevidence of crowding out and afforda relativelyrigorouscase for rejection of crowding out when contraryevidence is found. vincialhealthexpenditures both in real terms and relativeto otherprovincial over the period analyzed.butthenincreased almost40 by percentto $2.Due to the fact thathealthspendin ing grewconsiderably relativeimportance during the sampleperiod. into othergoodsandservicesaredisaggregated three of spending: social service expenditures. Similarly.While healthspendingwas relativelyconstant the first for half of the sampleperiod.124 StuartLandon. Thus. evidentin the data. a relativeinis creasein healthexpenditures. the out Indeed. this view is not consistentwith the data.Education and Social ServiceExpenditure a reExpenditure.MelvilleL. the sample spans periods of both and Further. This sectionis followedby a demodelto be estimated.11On the otherhand.thenconexpanded until 1997/98.NO. DE PUBLIC POLICY ANALYSE POLITIQUES.Thus.607 in 1995/96. the increase in health that expenditure beganin themid-1990swas accompanied. Given that the shortersample weights the periodof rapidhealthexpenditure expansionmore heavilythanwoulda longersample. Whilethe sidualcategory(Residual Expenditures). Althoughthe sampleperiod (1988/89-2003/04) is conoften considered be a periodof expenditure to tractiononly.The preted. provincialhealthand otherspendingdatafor the studyperiodare discussedand patternsin the dataareexamined.andfinallyexpanded tracted through 2003/04.by a recovery in spendingon all othergoods. proexpenditure expansion contraction.Averagehealthspending was $1.if anything. principalconditionfor crowdingout. the expenditures. It is possiblethatthe aggregation expenditure of categories might mask the impact of provincial of healthspending important on subcategories other Hence.9 government expenditure The limitationon the lengthof the studyperiod is not likely to be criticalto the presentanalysis. McMillan.248 in 2003/04.for at leastpartof the period.it rose considerably over the latterhalf of the period. .Thedatain Figure1 do not suggestan obvious betweenhealth expenditures negativerelationship andall otherexpenditures wouldbe impliedby (as the crowding-outhypothesis).

000 500 0 Fiscal Year ---Health Expenditure All Other Expenditures educationexpenditures.500 3. On the other hand.500 02.Has that growthcrowded out otherexpenditures? general.000 3. 2 2006 . 0.277 and-0.perhaps. Further.education.023. The data show substantial growthin provincial healthexpenditures government duringthe second half of the studyperiod.144. Thesecorrelation coefficientssuggest.015.ANALYSE DE POLITIQUES.13 The correpatterns lation betweenreal per capitahealthexpenditures and all otherexpenditures only 0. the CANADIAN PUBLIC POLICY .Does Health-Care CrowdOutOtherProvincialGovernment Spending Expenditures? 125 1 FIGURE Real Capita Per Provincial Health Government of Expenditures: andAllOther Expenditures (average provincial data) 4.000 1.500 4.5001. while the is correlation coefficients between healthspending and on social services. expenditures social serviceexpenditures wouldappear contrato dict the crowding-out hypothesis.000 cc 2. residualexpenditures.12 The correlation coefficientsbetweenprovincial healthexpenditures othertypes of and government tend provincial expenditures to confirmthe general observedin Figures1 and 2. VOL.the evidenceof In the simplecorrelation coefficientsandFigures1 and 2 suggeststhatnone of the non-health expenditure categorieswas adverselyaffected(except. Once again. NO. positivecorrelations between health spending and aggregate non-health education and expenditures.the recentrise in healthspendingdoes not appear be associatedwithsystematic to changes in the othertypes of spending. residual expenditures).at most.only a weak relationship between health spendingand the othertypes of spending. 0. XXXII. spending respectively. residual and spending are. and Theaverage percapitavaluesof theseexpendireal turesare plottedwith those for healthin Figure2.

500 2. of while also allowingfor the possibilityof crowding out.and these changes could obscurethe existenceof a negativerelationship between health spending and other forms of governmentspending. government an eachtype of good by maximizing objectivefunction (such as the probabilityof re-election or the or utility of a representative medianvoter)subject to the government's (Hettichand budgetconstraint that Winer1999). 2 2006 .500 _ C7) 1.Followingthis approach. (1) where Xst is a vector of exogenous factors.it is necessaryto specify andestimatea model of government non-healthexpenditures that controlsfor the key determinants these outlays.MelvilleL. McMillan.ANALYSE DE POLITIQUES. XXXII.14 CANADIAN PUBLIC POLICY . Modelling Provincial Government Expenditures In a standard modelof government-expenditure dea chooses its spendingon termination. VOL. NO. provincial government real per capita non-health in expenditures periodt (St)be givenby thefunction: St = P+ PSt-1 + PHHt + P2Xt + Ust. and ust of the represents randomcomponent spending. the allows for lagged dependentvariableterm (PSt_1) the persistenceof spendingthroughtime.000 1.000 500 0 Fiscal Year - -e-- Health Expenditure Education Expenditure -- Social Service Expenditure Residual Expenditure observedmovementsin differenttypes of government expendituresare likely to be the result of changes in many factors.126 StuartLandon.In orderto investigatethis possibility.Theoptimallevels of expenditure result dependtypically on exogenousdemandand let supplyfactors.VijayMuralidharan MarkParsons and 2 FIGURE Real Capita of Per Provincial Government ExpendituresType by (average provincial data) 2.

15 thatmakesit important of As government spending all typesis linkedby the government and.as an additionalexplanatory variable. To the while maintainingthe relative parsimonyof the of empiricalspecification.holdingthe otherfactorsthat determine as Stconstant.a of wereemnumber alternative of specifications large The major alternativespecifications and ployed.health through government's with the errorin spendingis likely to be correlated As the non-health equation. DE PUBLIC CANADIAN VOL. this wouldindidifferent insignificantly cate that movements in St are determined by movementsin exogenousdemandand supplyfacdoes tors only. The ing is of by magnitude thiscommitment represented real the and. it is of firstnecessary specifythecomponents thevecto torsXHandXs.the arguments the vecthe tors XHand Xs were chosen to represent most of determinants government expenditures.If the parameter is PrH fromzero.NO. the same factors were chosen for both vectors. thus. the level of realpercapita equation health expenditures.estimating two spendingequations out with equation(2) used to substitute for jointly.second. of determinants government Oneof theprincipal is expenditures likely to be realper capitapersonal Thisvariable reflectsthe income(personalincome). POLICY ANALYSE POLITIQUES. of a province'stax base and. that actingon behalf of theirconstituents. wouldbe suggestedby the crowdingIf outhypothesis. which enter the objective function or the budget constraint.21 All federal cash transfers are includedin the transfersvariablebecause only a small portion of transfersare effectively conditional. thatthe level of healthexpenditures not directlyaffect the choice of St and. The inclusionof Htin equation(1) allows health spendingto have a direct impact on other spending. an increasein healthexpenditures causes provincial governmentsto systematically reducespendingon othergoods fromthe level they would otherwisechoose. specifyingreal per capitaprovincial healthspending(Ht) to be a functionof government variableand a vectorof exoga lagged dependent enous factors(XHt):16 + + + Ht= o0 aclHt-1 c2XHt UHt. first.XXXII. important As a priori restrictionsare difficultto justify. 2 2006 . theireffects on the results(whichareminimal)are described brieflyat the end of the next sub-section. budgetconstraint the objectivefunction.. potentially. Underlying equations(1) and(2) is the assumption governments.Does Health-Care Expenditures? 127 SpendingCrowdOutOtherProvincialGovernment The only differencebetweenequation(1) and a standard equationis that expenditure government (1) includesH. percapita Real payments variable beare as (transfers) introduced a separate cause of the overwhelming evidencethat transfers affect governinentspendingdifferentlythanpersonal income.19To check the robustness the chosen specification.in addition. that thereis no evidenceof crowdingout. (2) the variableHt in equation(1).18 undertake empiricalanalysis. The elementsof the vectorsXHandXs arefactors.Thisis done by.17 In orderto estimateequations(1) and (2). This methodology gives crowding out a specific welfare on out interpretation crowding exists if spending on othergoods to fall below healthcausesspending the level that would normallyhave been chosen It of giventhe exogenousdeterminants spending. so that the model non-linear becomesa two-equation system. is this potentialwelfareimplicationof crowdingout froma policyperspective. magnitude determiis widely recognizedto be an important The nantof voterdemand government for services. this linkexpenditures would make health spending endogenous in age of equation(1).22 The exogenous spending commitment outstandimpliedby each provincialgovernment's debt may also affect current spending. the estimation this equationshould into takethis potentialendogeneity account. the parameter should PH be significantand negative. exogenous to the government'scurrentchoices. choose St andHt to maximize an objectivefunctionsubjectto a budgetconstraint.20 will revenuesavailableto provincialgovernments fromotherlevalso dependon the size of transfers transfer els of government.

variables.The proportion old in the population cal partyin powerareused to represent in across doesnothavea significant coefficient eitherequain voterpreferences government for spending is of time. Equation the healthequation similarto other all otherspending. variables. XXXII.Demographic estimatesassociatedwith the controlvariablesare government that of resentedby the proportion the population is generallyas expected. and andWyckoff(1996) includeincome.in particular.the marginaleffects for government services. are and and the estimated parameters are generally of logarithm all variables.age variables.VijayMuralidharan MarkParsons per capita expenditureson debt-servicing (debt charges).29 as andtransfers explanatory variables. transfers personalincome may havedifferentdegreesof resistanceto tax/exand increases.buta positiveeffecton youngerpopulation is (2).but the youngerthanfive (child).debt charges.VOL. but thatdifferacross expenditures equation.23 aged.Table2 presentscoefficientestimatesfor the variableis case in whichthe all otherexpenditures transfers.for example. NO. McMillan.26 Takingthe natural there consistent withtheresultsof Table1. the signs of the coefficient factorsarerepservices. overall).MelvilleL.and is estiinto threetypes of spending. with health that is 65 or older (old) and the proportion aged The tendingto be more persistent. The impact of the debt is on provinces. greater havepositivecoefficients.social matedusingpaneldata. although defining St as all other expenditures real per other than are several interesting differences across the spending capita provincialgovernment CANADIAN PUBLIC POLICY .24 of differences equation. Parameter of is These estimatesexplain a large proportion the ing across differenttypes of expenditures also in thereis no evivariables.equations(1) and(2) areestimated jointlyusinga panelof provincial-leveldatafor the period1989/90through 2003/ in estimatesare reported Table 1.Demographic tastefactors has a significantcoefficient only in the all other penditure thatare constantacrosstime. expenditure to do estimatedspeedsof adjustment not appear be but also young children.whilethepercentage youngchildren found effecton healthspendto havea significant negative The empiricalspecificationemployedhere par. similarto the models used to study the impactof and sidual expenditures. along the percentage the population of of the variationin the dependent with a variety of variablesspecific to health and large proportion thereis no evidenceof serialcorrelation. expenditure health spendingon other spendingby US states. intergovernmental tures.and 128 StuartLandon.28 healthexpenof provincial empiricalspecifications the In order determine to whether resultsreported ditures.are often associatedwith differentage groups unreasonable. 2 2006 . spendingon healthanddebtcharges.04.transfers.suchas demographic for and the tasteof residents torsandfactorsthatreflect appearreasonable.Thereis significantpersistence in both types of spending.Di Matteoand Di Matteo of in Table 1 dependon the aggregation expendiandAriste and Carr(2003) . schoolingas well as stateandtimedummy the signs of the estimatedcoefficients associated Estimation and Results withthecontrolvariables generallyas expected. estimates explain a Once again.in thatit in(1998) cludes an income variable.Themodelusedhereis also disaggregated and educationexpenditure reservice expenditure. Further.ing (perhapsreflecting the impactof a generally allels the specifications used in related models. are representedby provincial dummy chargesvariable spending negative.27 of The level and distribution provincialspend. likely to dependon factorsthat affect the demand variation thedependent facdence of serial correlation.ANALYSE DE POLITIQUES. equationsfor and Schmidt(1997) employonly income these threetypes of spendingare estimated jointly McCarty whileFossett with the healthequation.witha significantcoefficientonly in the health expenditure while dummyvariablesfor the politivariables.25 tion. the parameter overage 65.While both personal income and healthneeds.

VOL.The also a constant.868 0.0212 (0.50 375.0645** (2.16) -0.6214** (7. .27) 0.37) 0. the are for CANADIAN PUBLIC POLICY . (see testconclusion unchangedonly lagged if is the residuals included thetest regression if thestandard are in or errors from test regression corrected heteroscedasticity.55) -0. t .5541** (2. period: Notes: Expenditureareinlogreal capita foreach data terms per province.50t Effects Marginal for AllOther Expenditures# Short Long Run Run 0. = of over . point correlation reject hypothesisnoserial cannot the of correlation. health the and are expenditure expenditureallother expenditures equations estimated with variable jointly thehealth expenditure intheallother expenditure equation replaced thehealth by expenditure equation.48) 0.25) 0. innatural except logarithms. a one-dollar capita of increaseeach in impact allother expenditures.The variable all variables constant forold child which istheimpact a one and for it of holding other explanatory except percentage increase. .The number each below coefficient estimatetheabsolute oftheheteroscedasticity is value consistent t-statistic.1248** (3. .26) -0. and variables estimating equations included provincial variables. political dummy dummy party have to reportedconserve (these notbeen space).4543 -0.35) 0.Allother = total . on indollars capita.debt expenditures expenditures expenditure charges at at ** significant 95 percent * significant 90 percent .0856 (0.15) -0.1387 -193.3052 -0.68) 0. 2 2006 .All are variables.3997** (4.Atestforserial with associated thecoefficient thelagged on residual a regression theresiduals thelagged in of on residuals the and variables appear theoriginal that in and The explanatory 1993.4186** (3.3282** (3.health .4585 . thedummy variables.2143** (2. per per explanatory fi .1538 0. teststatistic thet-statistic The is t .0932 -129.ANALYSE DE POLITIQUES.Sample 1989/90-2003/04. NO.Ashealth is endogenous.Number observations150(10 provinces 15 years).52) 0.890 0.1033 0.24) -0. XXXII.1629 (1.Does Health-Care CrowdOutOtherProvincialGovernment Spending Expenditures? 129 1 TABLE Health All and Other Coefficient Estimates Expenditure Variables Dependent AllOther Health Expenditure Expenditures 0.94 0.2805 (1.99 251.0688** (2.6825 Dollars Capita per Variables Explanatory Health expendituret variable Lagged dependent Personal income Transfers Debt charges Old Child R2 AR1 Test 0.95) 0.99t 0.02 . regression equation Davidson MacKinnon 357-59).

2 2006 DE VOL. personal income is a significant determinant education of and while expenditure social service expenditure.09) 0.19) 0.130 StuartLandon.1652 (0.NO.2703** (4.52) 0.3671** (4.16) -0.14) 0.but have a significantcoefficient in the healthoutlaysequation only.transfershave a significantimpacton healthexpenditure residual and but expenditures.VijayMuralidharan MarkParsons and TABLE 2 Social Education Residual and Coefficient Estimates Health.24t Residual Expenditures 0.7113** (2.09) 0.the proportionof youngchildren a positiveeffecton social has service expenditure.debt .80) -0.15) -0. .890 0.91) 0. expenditure categories.6299** (5. in CANADIAN PUBLIC POLICY ANALYSE POLITIQUES.the resultsin Table2 generallyparallelthe resultsfor all otherexpenditures Table1.925 0.0271 (0.health .06) 0.5968** (3.44) 0.MelvilleL.37) 0.6214** (7.26) -0.08t 0.34) 0.4488** (2.1629 (1.0029 (0.0645** (2.1609 (0.3997** (4.99t 0.37t Test AR1 (t-statistic) 1. Expenditure Explanatory Variables Health expenditure variable Lagged dependent Personal income Transfers Debt charges Old Child R2 Health Expenditure Variables Dependent Social Service Education Expenditure Expenditure 0.0203 (0.0688** (2.1294 (1. Seethenotesto Table = total .education Residual service expenditures expenditures expenditure charges social expenditure expenditure. transfersare not.95) -0.25) 0.65) 0. thereare some differencesacrossexpenditure categories. Service.13) -0.13) 0. personal encomedoes not.0853 (1.68) -0.1519 (0.37) 0.0447 (0. Debt chargeshave a negativeimpacton all fourtypes of spending.805 0.11) -0.26) 0.69) 0.30Finally.49) 0.2805 (1.885 0.1520 (1. summary. McMillan.06) 0.5370** (2. In contrast.3656** (2. XXXII.0482 (0. does not have a significant but on education In while impact expenditure.9672** (3. educationexpenditure reand sidual expenditures.2516 (0.74) -0. The coefficients on the lagged dependentvariables are significant in all cases except for educationexpenditure.

32 Hence. category provincial theresultsimplytheopposite thathealthandnontendto move in tandem. this Thisstudy assertion notbeentestedempirically.respectively. equations withthe associated Estimates the coefficient(PH) of variablein the non-healthexhealth expenditure to corresponding thesedifferent penditure equations are presentedin Table 3. coefficientsare relatively the of uniform. has uses statisticalmethodsto examinethe hypothesis thatincreased healthspending crowded other has out types of provincialgovernmentexpendituresand this findsno evidenceto support hypothesisfor the 1988/89through2003/04 period.also. thathealthcare expenditures increasedfrom 30 to 36 percent of provincial budgets over the whole period. provideno supportfor the hypothesisthat health spendinghas crowdedout othertypes of expenditure.33 the essentialconclusionsof the empirical on The impactof health expenditure all other expenditures and residual expenditures remains positiveandsignificantin almosteverycase. tendto moveboth thatprovincial governments plies types of expendituresin the same direction. expenditure and residual expenditures equations. 2 2006 . CANADIAN PUBLIC POLICY .ANALYSE DE POLITIQUES. CONCLUSION it Although has oftenbeen statedthatan increasein provincialgovernment spendingon healthservices causesa reduction provincial in government spending on other types of goods and services.while the last three columnsin Table3 coefficient reportthe estimatedhealth expenditure education in thesocial serviceexpenditure. have a and significanteffect on residualexpendipositive The of tures. The first specifications columnin Table3 reportsthe estimatedhealthexpenditurecoefficientin the all other expenditures equation. In Table 1.31 implication theseresultsis thatthere is either no relationshipbetween health spending andotherexpenditures in the case of socialserv(as or ices andeducation) a positiverelationship in (as the all otheror residualexpenditures categories)in move in which case healthand otherexpenditures evidence the samedirection.Increasesin support do health expenditure not have a significantpositive or negative effect on either social service but or expenditure educationexpenditure. the magnitude significance and Indeed.during sampleperiod. the coefficientsarequiteconsistent. healthexpenditures To demonstrate the resultsare robustto althat ternative specifications.35 here againstthe crowdThe evidencepresented is found despite the fact that ing-out hypothesis averageprovincialreal per capitahealthspending overthefinalhalf 50 grewby approximately percent of the 16-yearperiodstudiedand. and the estimationof the model in levels ratherthanlogs has little effect on results.34Furthermore. while variableon the impact of the health expenditure and social service expenditure educationexpenditure is generally insignificantly different from zero.particularly for those cases thatcould be considered be the most to reasonablespecifications. NO.The in resultsreported Table2 also do not disaggregated the crowding-out hypothesis.the first rowsof Table1 andTable2 presentestimatesof the the coefficient(1H) thatrepresents impactof health Theseestimates on non-health expenditure spending. the coefficient on the health variablein the all other expenditures expenditure This resultimequationis positiveandsignificant. the deletion of most of the explanatoryvariables. XXXII.health crowdedout eithernon-health provinexpenditures cial programspendingin aggregateor any major of Indeed. the two estimating and wereextended variedin severalways. government spending.Does Health-Care Expenditures? 131 SpendingCrowdOutOtherProvincialGovernment of to Turning the variable primeinterest. VOL.the statistical for in reported Tables1 and 2 providesno support the thehypothesis that. The addition of numerous explanatory variables(includingthe additionof a dummyvariable for each year).Not a single alternative specificationyields estimatesthat supportthe hyleadsto pothesisthatan increasein healthspending a statisticallysignificantdecline in othertypes of provincialgovernment expenditures.

1692 (0.57) -0.2143" 0.41) CANADIAN PUBLIC POLICY .2138** (2.3840** (2.2873* (1.and jointly in3.26) 0.Add variables 4.MelvilleL.65) 0. XXXII.0195 (0.2049** (2.1142 (0.61) 0.4109** (2.0464 (0.Split transfers between and transfers general specific 3.88) -0.48) 0.5.Add school-age a variable population 5-24) (ages 5.0779 (1.132 StuartLandon. the 6 8.0491 (0. 2 2006 .05) -0.20) 0.1697 (0.77) 0.Delete political dummy the variables party 11.30) -0.VOL.1763** (3.0353 (0.95) 0. McMillan.05) 0.1609 -0. 0.3454* (1.5738** (2.34) 0.2462 (1.3991** (2.0011 (0.Estimate rather natural logarithms Seethe notesto Table 1.24) -0.36) 0.VijayMuralidharan MarkParsons and TABLE 3 EstimatesHealth of Coefficients Different Specifications under Model Spending Variable Dependent Other Social All Service Education Residual Expenditures Expenditure Expenditure Expenditures Estimates inTablesand 1 2 Reported to Specification 1and inTables 2 Changesthe 1.Delete variables thelagged all 0.Add unemployment the rate 6.0088 (0.ANALYSE DE POLITIQUES.Delete old child the and variables 0.1289 (0.Replace income per GDP personal with capita 2.03) 0. NO.24) 0.19) 0.30) the and dummy inlevels than 13.constant theprovincial variables (2.3852** (2.53) 0.2031** (2.0283 (0.1784** (1.0144 (0.2233** (2.Add variable trend 9.11) 0.12) 0.1834 (1.0482 (0.07) 0.2228** (2.4190** (2.1512 (0.31) 0.11) -0.26) 0.0719 (0.27) 0.29) 0.02) 0.94) -0.Add relative ofgovernment the services prices 7.1278 (1.70) 0.1065 (0.0056 (0.2404** (2.0080 (0.Add individual dummy variables year 4.96) 0.4736** (3.15) 0.17) 0.34) 0.1775 (1.Add population 5 to17 ages 10.10) 0.1898** (2.2659** (3.31) 0.3447** (2.40) -0.1324 (1.3656** 12.4277** (2.0203 0.0285 (0.0818** except dependent variable.92) 0.83) 0.23) 0.0935 (0.76) 0.17) 0.42) 0.4414** (2.1815 (1.92) 0.01) 0.92) 0.0627 (0.05) -0.45) -0.22) 0.61) 0.1708 (0.

while the bulkof increased healthspending beenfinanced has increasedrevenues. at least since the late-1990s). aging of the population. a result. expenditure depend. Thus. CANADIAN PUBLIC POLICY . portant interesting the It is important interpret resultspresented to abovewith due caution. Further.37 transfersled to improvedfiscal intergovernmental capacity.debt chargeshad a significantnegative effect on health spendingonly. Mackinnon (2004). As there is no evidence that increasedhealth spendinghas crowdedout othertypes of provincial expenditures duringthe sample period.Whether not crowdingout occurs or in thefuture onlybe revealed future will research. findno evidencethathealth-care have expenditures crowded out other provincial government expenditures. they generally determination.whiledebtcharges may have had an adverseeffect on all types of program spending.althoughthis has not led to a decreasein otherprogram spendinghow has the increase in health spendingbeen financed? In aggregate. increases thecostof healthservices suggest thathealthcosts may continuerising.2). by for the 1988/89to 2003/04period. viewsexpressed in thisstudy thoseof theauthors do notreflectin are and Canada. riod contributedto relatively lower debt-service while risingincomesand increasesin payments. demographics Since real health spending per capita has increasedsince the mid-1990s.in thefuture.36 balanceof the was primarily faciliincreasein program spending tatedby the declinein debtchargescausedby a fall in in interestrates.38 Higherinterestratesor a slowingof the growth rate would make financing increases in the health spendingmore difficult.went primarily expenditures. VOL. 103).withalmosta thirdof this increasein real transfers from per capitarevenuesdue to increased The other levels of government. 2 2006 .although into health-care program spending. controllingthe growthof health expenditures.transfers. XXXII.improvedand expandinghealth in and technologies. (Saskatchewan report the Commission (Alberta 2001. Boothe Carson (2003. Almost 75 perincreased centof thisincreasewasfinancedthrough revenues.it was easier for governments financeincreasedhealth to Fallinginterestrates duringthis peexpenditures.Does Health-Care Expenditures? 133 SpendingCrowdOutOtherProvincialGovernment Althoughbudgetshareshavechanged.is an imand avenuefor futureresearch. on provincial income.in the latterhalf of thestudy period(thatis. government expenditures this does not.imply thatthereis no risk of crowding in the future. of course.the levels of servicesappear spendingon healthand non-health modelof government to follow a relativelystandard Thatis.The empiricalresultspresented Tables1 and2 indicatethat.this does not imply thatthecontinued growthof healthexpenditures will not threaten other types of program spending in the future. debt-payment andtastes. NOTES of Theauthors thankful the valuable are for comments the editor. Mazankowski report and and 4). provincial governments increasedreal per capitaprogramspendingby 16 percentfrom 1996/97 to 2003/04.or cutting other types of program As we spending. although the scope of the current beyond analysis. associate an editorandthereferees. Formally testingthishypothesis.Whilethereis no evidence that health expenditureshave crowdedout other the during periodstudied. governments facethechoice may of raising taxes.although havenotobserved out crowding overthe recentpast.we Nevertheless. NO.it seems likely that the inby crease in healthspendinghas crowdedout private spending. anywaythoseof Finance 'TheFykeCommission 2001. commitments.ANALYSE DE POLITIQUES. Scott(2004). This suggests that the fiscal dividend that accruedto the Canadian provincesas a result of lower interestrates in the smallrelativeto the changein total 1990s.althoughto differentdegrees.Onereasonwhy there out may be no evidenceof crowdingout in the sample considered hereis that. rebut for The mainresponsible all errors.

pear for non-stationarity not feasiblegiventhe short is testing time span of the data as tests for non-stationarity (even those designedspecificallyfor paneldata)havevery low power in time series of this length (see. do the tics Canada. fromStatisticsCanada. spendingby definitions and for 8SeetheAppendix specificvariable datasources. Vijay Muralidharan and Mark Parsons 2Scott(2004) presentsdataon the growthratesof different types of health expendituresand discusses the issues of crowdingout and sustainability.change.Expenditure are sum to one. Melville L.8 to 30. he does not formallytest the crowding-out hypothesis.16 yearsof datafor each of the ten provinces.Antunes and McIntyre2001. e. XXXII. '0Notethat the time span of the sampleused here is longer thanthe time span used in the two most closely related US studies . Table3850001. some might consider examining approach sharesratherthan real crowdingout using expenditure shares. As an alternative the taken here. In conversations recommended that the authors. crowding mustimplythat levels (or shares)differfromthe valuesthat expenditure maximizethe relevantobjectivefunction. the real per upwards in data capitaexpenditure illustrated Figures1 and2 apFormal to show little evidenceof non-stationarity. whetherall expenditures increasing.andthis may cause governmentsto adjust program spending slowly.or all decreasing.g.1 percent addition. e. authors not believe it to be properto extendthe sampleby employingearlierdata. TheConference will for estimates healthexpenditures account that jection 2010 (Frank 40 percentof program 2003). OneproMcDermott 2004. The authorsalso found seriavailabledataand ous differencesbetweenthe currently the olderseriesfor the yearsin whichthe two dataseries Giventhis evidence. 3Program spending is public spendingexclusive of spendingon debt-servicing. In rose from23. 40).As sharesof spendingcan rise or fall for manyreasonsthat are con- CANADIAN PUBLIC POLICY .must per capitaspending. Jacksonand Board2004). 2 2006 .or whetherthey are moving in different on directions.Earlierexpenditure viously been availablein Cansimmatrices2782 to 2791 Public Finance and in the StatisticsCanada publication with one of HistoricalData (68-512). on fall in the shareof expenditure another good. or to accept. 7Forecastsof future spending patternsproject that will continueto comprisea larger health expenditures share of GDP and provincial budgets (see. gramexpenditures to recognizethe need for. "1All has real 12Although percapitahealthspending trended since the mid-1990s. That is. while the latter observation is calculated using data from Statistics Table3850001. Shifting shares do not necessarilyhave any importancefrom a To welfareor policy perspective.ANALYSE DE POLITIQUES. 14Government spendingis likely to be persistentdue as to delays in budgetpreparation well as to contracts and institutional factorsthatmakerapidchangesto provotersmay be slow difficult.. that recommends these datanot be 9Statistics Canada datahadprespliced to earlierdata. Brimcombe. methodof testing crowdingout is similar to 15This thatused in the two US studiesnotedin the introduction (Fosset and Wyckoff 1996 and McCartyand Schmidt (1987) 1997) as well as thatusedby BrazerandMcCarty to and Marlowand Shiers (1999). valuesare in 1992 constantdollars. Although. each correlation on coefficientis calculatedusing 160 observations each variable. are 6Thevaluesin this paragraph calculated usingdata CansimII. correlation coefficients are calculatedusing 13These individualdatafor all ten provincesratherthandataaveraged across the provinces. Karlsson andL6thgren 2000).privatespending of total spendingon healthcare. of 5Theobservation 1974/75is fromtheMazankowski for Commissionreport(Alberta2001. questionsthe existence of crowdingout. StatisticsCanada strongly the earlierdatanot be used andnotedthatit was to preventthe use of thesedatathattheyhadbeendeletedfrom the Cansimdatabase.for whatever reason.Fosset and Wyckoff (1996) and and McCarty Schmidt(1997).unhe like other commentators.VOL. McMillan. so the increasein provincial government spending was not due to the substitution public spendingfor privatespending. be relevantfroma welout fareandpolicyperspective.g.Any increasein the shareof expenditure mustnecessarilyleadto a one good.All referencesto Public Finance HistoricalData (68-512) havealso beendeletedfromthe StatisticsCanada Website..andthe views of Statisoverlapped. NO.however.Further. in general. Canada.CansimII database.134 Stuart Landon. 4Canadian Institutefor HealthInformation (2004).

319. Thus. 23Alternative groupswere also employedas indiage catedin Table3 anddiscussedbelow. for payments Alberta. for example). but which the in do not appear equation(1). in fact.alon thoughthe existing empiricalliterature crowdingout is small. This asymmetryis imposed in order to focus the whether purpose to determine analysison its principal are healthexpenditures crowdingout othertypes of exof If penditures. of in to movements resourceprices. 2 2006 . (The influence of spendingon sharesexists. Oates (1999) providesa survey. specific questionaddressed the are the parameters identifiedthrough es"7Since ca timationof equation(2). of a smallnumber othervariables. the interaction all types of expenditures were of interest. New the DemocraticParty. it incorporated However. Ontario greatly Only recently(since 2000/2001). and then only in very minor amounts(less than 4 percentof transfers). XXXII.the bias is relatively MonteCarlo small (see Arellano2003.Only of to aboutone-quarter the total in 1994/95. Tax the Canadian Foundation. for example. For information federal-provincial Financesof the Nation. the with the lagged dependentvariablemay tendsto be quite small (see bias in the otherparameters Islam2000. simply observingthat the shareof spendingon one goodhasfallenis notparticularly Further.a VARapproach mightbe more approeven if suchanapproach.However. for affectthe demand govdensity. While fixed effects in a dynamicpanel lead to this biasedestimatesof the parameters. Without inclusionof at least one variablein (2) thatis not in (1).wouldinvolve the esWhile timationof a muchlargernumberof parameters. cap-on-CAP limitedthe impactof this conditionality). the CHSTwas split into SocialTransand HealthTransfer the Canada the Canada transferssee on fer. 16While equation(1) allowsotherspendingto depend on currenthealthspending. and such as the extent of urbanization 24Variables. afterthe end of the sampleperiodused here. becausesharesmustsum to one.in examiningreal per capitaspending.have transfersbeen specifically designated for and tied to in healthexpenditures. Starting 2004/2005. '8Since these factors are exogenous to the governsuch ment'schoices.Does Health-Care Expenditures? 135 SpendingCrowdOutOtherProvincialGovernment and sistentwith maximization.GDPmaydiffersignificantly due has GDPfor someprovinces a largevariance Further. the parameter is identified PH by the variable(s)thatappearin equation(2).whichmay population are ernment expenditure. NO.The substitution real percapitaGDPfor realpercapitapersonalincomeis one in of thealternative analyzed Table3 below.theycannotincludechoicevariables as. is 19This constraint relaxedwhen alternative specifiboth X vectorsto be cations are considered. thatuses an empiricaltest of crowdingout that is fundamentally differentfromthatused here. had conditions constraining the use of the funds (and the and BritishColumbia. but is implicit. priate. manyfirmshaveout-of-province income.ANALYSE DE POLITIQUES. 20Analternative proxy for the tax base is provincial ownas GDP. we are not awareof any studythatempirically analyzescrowdingout using sharesor. significant. fromprovincial ers.)Finally. CANADIAN PUBLIC POLICY .the PartiQudbdcois.as an alternative methodology. Progressive Conservative Party.amounting Social Transfer (CHST). 22Thevast majorityof transfersconsist of unconditionalequalization grantsand specific purposetransfers Financthatweredetermined theEstablished Program by and CanadaAssistance Plan (CAP) regimes ing (EPF) Healthand untilbeingreplacedin 1995/96by the Canada CAP funding. bias goes to zero rises and even with only as the numberof observations for 15 observations each province. yields almostidenticalresults. it wouldnot be Use separate andP2 parameters.tax rates.Restricting in the sameimpliesthatthe PH parameter equation(1) is identifiedby lagged healthspending. possibleto distinguish PH estimation of two-stage least squares. 84-86).ratherthanthe shareof spendingon each good. the objectiveis to relatecrowdingout to a quantitythat more closely affects individualwelfare.equation(2) does not allow otherspendto healthspending dependon current current ing.andthe Social CreditParty. VOL. Further. specifications on 21Seethe largeliterature intergovernmental grants andthe flypapereffect. while the parameter evidence be biased. associated indicatesthat. 25Fivepolitical partiesheld power at the provincial the level duringthe sampleperiod:theLiberal Party.it is suited to a broaderand differentquestionthanthe very here. likely to be relativelyconstant acrossthe shortsampleused here andso arelikely to be well represented (and very co-linearwith) the fixed by effects. of welfaregenerallyfollows fromthe quantity goods and services provided. is the VARmodel approach potentiallyinteresting.

given the shorttime spanof the sample.The insignificanteffect of the proportion old in the populationis consistentwith the resultsin Ariste and Carr(2003).Given the heteroscedasticity form of the estimatingequations.3 percentand. If realpercapitaGDPis used in place of personal income. ing 35This conclusionis consistentwith the conclusionof Scott (2004). 33This not surprising the addedvariables(school is as age population.although schoolboardtransfer able is positive and significant in the education The coefficientin expenditure equation. that a large part of the demographiceffects on spendingwill be reflectedin the provincedummyvariable coefficientssince demographic factorsare unlikely to vary significantlywithina provinceover such a short of period.and ploymentrate. health-spending the all other expenditures of Table 1 and the equation residualandsocial servicesexpenditure of equations Table 2 areunaffected this change. turecategory.In contrast. 27The t-statistics have been calculated using consistentstandard errors.Di Matteo See.fell from13. XXXII.VOL. estimateswereessentiallyunchanged. the tuitionvariableis never the sharevarisignificant.In this case. who use a samplefrom 1966 through 1998. Melville L.government a trendvariable)were statisticallyinsignificantin most cases.ages 5 to 24 .the estimatedcoefficientsand theirsignificance are almostunchanged except thatthe real GDPvariable is insignificant theall otherexpenditures.Thus. fiusingdatafor provincial government nances (CansimII.elementaryand sec- CANADIAN PUBLIC POLICY . 29The estimatedcoefficientsof the healthexpenditure equationare the same as in Table 1 due to the recursive natureof the model.68 in the long run.the estimated log-log can as parameters be interpreted elasticities. but not with Di MatteoandDi Matteo(1998) who use dataonly through1991.ANALYSE DE POLITIQUES. forexample. contrast. 34Another possiblealternative specificationis to add.the negative coefficient associatedwith debt charges in all four expenditure equationssuggests that debt chargesmaycrowdout othertypes of expenditures. aggregate provincial real costs fell 24.136 Stuart Landon.Theseeffects are positive and relativelylarge.46 in on is the shortrunand$0. to kindergarten grade12 expenditures.not negativeas required if crowdingout hadoccurred. 28Itis possible.the unemservicesprice variables. the additionof these two variablesalso providesno supthis portforthe crowding-out hypothesis(although result shouldbe interpreted cautionas these two variables with to maybe endogenous theprovincial governments' spendchoices). Table3850001) as well as data for (V466668) anda price index (V691784). The 32From marginal the effects reported Table1. residualexpenditures and equations. except that the two transfers variables are insignificant in the health expenditureequation.0 percent. as explanatoryvariablesin the all other expenditures equationof Table 1 or the educationexpenditure equation of Table 2. 2 2006 . in social service expenditure. 36 Calculated 26The log-log specificationis commonlyused in the healthexpenditure literature. the log of the ratio of provincial governmenttransfersto school boards to total school boardrevenue(to capture changesin school financeduring this period)andthe log of per capitapostsecondary tuitionrevenue. it can in be seen thatthe impliedeffect of a one-dollar increasein health expenditure all other expenditures $0. anda new residualexpendipostsecondary expenditures. andDi Matteo(1998) andAristeandCarr(2003).the data for all other expenditures were disaggregated into four alternative of expenditures: social assistsubcategories anceexpenditures. McMillan.5to 9. population 37Between 1995/96and2003/04. stantandtheprovince politicalparty and variables dummy have not been reported. Also. in 30Although significant the healthexpenditures only equation.Toconserve the estimated coefficientsassociatedwiththe conspace.If the transfersvariableis split betweengeneraland specific transfers. health the by coefficient theeducation in expenditure expenditure equation of Table2 becomes positive and significant. the coefficients on the two types of transfers similarin magnitude the resultsareunare and changed. These estimatedcoefficientsare availablefromthe authors. the US studiescited in the text found no evidenceof crowding amongvarioustypesof govout ernmentexpenditures. Vijay Muralidharan and Mark Parsons ondaryschool population ages 5 to 17 . government debt-service as a percentage total provincialgovernment of expendiIn from1988/ tures. of 31Asa check of the robustness the results. NO. noneappear be nonsenbut to sical or particularly noteworthy.

2004. XXXII. and M. A. J. rose from 10. .2 percent. Fossett. Lazar." in and Panels. Panel Cointegration DyNonstationary Elsevier namicPanels.2000 to 2020. on 2003. 1999. McIntyre. on Di Matteo.as to 13.Montreal: of tute for Researchon PublicPolicy.ca/37/2/parlbus/ commbus/senate/com-e/soci-e/rep-e/repoct02vol6e."HealthPolicy ResearchWorkingPaper HealthCanada. The G. 1996. Services. "Interaction tween Demand for Education and for Municipal NationalTaxJournal40: 555-66.PolicyandLaw21(3): 40932. NewYork: OxfordUniverin Econometrics. andJ.Ottawa: Canada."Economics Letters66:249-55.gc. Arellano.1999. ing: Prospect of Fiscal Policy Branch.Science Standing and Technology. Di Matteo. FutureCostof HealthCarein Canada. "SmallSamplePerformance Dynamic the in PanelDataEstimators Estimating Growth-Convergence Equation: A Monte Carlo Study. Reportof the Premier'sAdvisoryCouncil The on Health:A Framework Reform.HealthCareSpendH. Economicand Ottawa: and Retrospect. "Evidence the Provincial Government Determinantsof Canadian Journalof Health HealthExpenditures: 1965-1991. 2004. REFERENCES Alberta.L. and F. 2003. P. and the Paradoxesof the Frank. 2004. Ottawa: Boardof Canada. J. St-Hilaire. Carr. Tax Canadian Foundation. Lithgren. Final Reporton the State of the Health CareSystemin Canada(The KirbyReport). PublicPolicy. Expenditures?" T. 2003. Marlow. for Council. Cambridge Cambridge: of Islam. Insti." nal of EconomicLiterature 37(3):1120-49. Jackson.htm. andA.." Proceedings87(2):278-82. Baltagi. 02-06.W. ed.R. Health-Care Commentary 193.E. No. Health Care Cost Drivers and Escalators. 2003.W. and S. "NewConsiderations the Ariste.PoliticalTrade-Offs Canada'sFuture.2000. The Conference Ottawa: Canada.Ottawa: Trends HealthExpenditure dianInstitutefor HealthInformation.Does Health-Care Spending Crowd Out Other Provincial Government Expenditures? 137 real debt-service 89 to 1994/95. Karlsson.Amsterdam: Science. P.Realaggregate govfrom 1997/98 to 2003/04. tion.J. 317-39.parl. "DoLawEnforcement Expenditures Crowd-Out Public Education AppliedEconomics31:255-66. Canadian Cana1975-2004. Money. McDermott. VOL. Howe Insititute.Department Finance. Sustainability The ConferenceBoardof Romanow Report. DemocraticChoiceand Taxation.Edmonton. UniversityPress.G.1998. "Has Medicaid GrowthCrowdedOut State Educational Spending?" Journalof HealthPolitics.H.M. Inference sity Press.2002a. What Happened to No.E. Winer. McCarty.D. JourOates. Conference and R. andA.realpersonal income per capita grew by slightly more than 9 almostconstantfor the firsthalf percent.Final Report(The RomanowCommission).1987. and J. provincialgovernment of a percentage total rose expenditures 50 percentand. Brimacombe.Politics the andHealthCare:Reconstructing FederalProvinInstitutefor Researchon Montreal: cial Partnership.W. B.1999.afterremaining to transfers provincial of the sample. "A VectorMcCarty. and Montreal:McGill-Queen'sUniversity Kingston Press.A. Shiers. andS. Understanding CANADIAN PUBLIC POLICY ." 2001. M. 1997.Ottawa: on SenateCommittee SocialAffairs.1993. AntunesandJ. 2000.National for Institute HealthInformation. Hettich.premiersadvisory. beBrazer. Wyckoff. Ottawa: Boothe. Ottawa:Commissionon the Futureof Health Carein Canada.S.H. andM. 2003.H. Autoregression Analysis of State-Government Review Economic American Papersand Expenditures.N.Oxford: OxfordUniversityPress. 2004."AnEssayon FiscalFederalism.Finances of the NaTax Canadian Foundation. L.2004. Mindingthe PublicPurse:TheFisand cal Crisis. Annual. the 38During final eight yearsof the sample.8percentfrom1988/89to 1997/ 98. Mackinnon. ernmentsrose by 39 percent afterhavingfallenby 18." Economics17: 211-28. andR. Toronto: Reform? C. and T. At www. in Analysisof HealthExpenditures Canada: Empirical 1966-1998.2002b. TheArithmetic HealthCare.com. Carson. 2 2006 . Schmidt. pp. andJ.Buildingon Values: Futureof HealthCare The in Canada.H. F.2001.eds.1 provincialexpenditures. J.At www. Boardof Canada. Estimation Davidson. NO.ANALYSE DE POLITIQUES. "Onthe Powerand of Interpretation Panel Unit Root Tests. McKinnon. Panel Data Econometrics. Toronto: Conference Board of Canada.

VOL. Saskatchewan.ANALYSE DE POLITIQUES. 2 2006 . 2004. Melville L. McMillan. 2001. NO. At www." Policy Options25(7):59-64. XXXII.health. Health Care in and Canada:Demographic Fiscal Issues.138 Stuart Landon. J. Caring Medicare:Sustaininga for QualitySystem. "The'Other'HealthSystem:Reflections on the Dark Side of the Moon of Healthand Health Carein Canada. Vijay Muralidharan and Mark Parsons Ruggeri. eds. Yu. H. 2003. CANADIAN PUBLIC POLICY .gov.Final Report (The Fyke Commission). Regina: Commission on Medicare. and W.pdf.ca/mc_dp_commission_on _medicare-bw. Fredericton: of of Policy StudiesCentre the University New Brunswick.sk. Scott.

v645590. v645738. v645599. expenditures all goods government logarithm realpercapitaprovincial total exdollarfiscal yearprovincialgovernment and servicesotherthanhealthanddebt charges. andthe consumerprice index (CPI)(1992=100)for each province.the most likely alternative the CPI. v467613.v645462. v469188. v645792.First.. v645870.v645396. Social service expenditures and workers'compensation. v645863.v645384. government employeepensionbenefits. NO. v645335. 2 2006 . v645846. v691991.withthedatafor the individual provinces givenby the seriesv645276. withthedatafortheindividual givenby the seriesv645260.v645524. Variables ProvincialExpenditure Current healthexpenditures. 1988/ 89 fiscal year dataare associatedwith 1988 calendar yeardata). v645401. v645804. v691899. expenditures soon includeexpenditures social assistance.CansimII series numbers: v691807. that in real expenditures havelittleto do withchanges swingsleadto largemovements measured government in spending.v645648.withthedatafortheindividual givenby the seriesv645264. v467928. logarithm real per capitaprovincialgovernment are forthetenprovinces fromCansim education fiscalyearprovincial dollar Current expenditures government II. v645533. v691968.The first two categoriesaccountfor dollarfiscal year provincialgovernon 70 percentof these expenditures average. v468243. The sourcefor the healthdatais given above. series The datathatarein realpercapitatermsweretransformed usingthe population v466983. v645594. v467298. CANADIAN PUBLIC POLICY .ANALYSE DE POLITIQUES.v645392. v645656. VOL. v645467.othersocial services. provinces penditures givenby the seriesv645252. v691876. v468558. v645780.v645408. of atedwith calendar yeardatafromthe yearthatmakeup the firstthree-quarters the fiscal year(i.this transforms cost of the government spendingin terms spendingvariablesinto a measure the opportunity of government GDP to of a basketof consumption Second. on of Naturallogarithm realper capitaprovincialgovernment Social service expenditure. provinces v645528. v645606.v645516. v645540. v691945.withthedataforthe individual II. v645797. data Theprovincial is usedto deflatethe government CPI expenditure for two reasons.v645326.e. education Natural of Educationexpenditure. v645731.v645714.Note thatDi MatteoandDi Matteo(1998) also use the CPI.withthe datafor the individualprovincesgiven by the series v645269. of Natural Healthexpenditure.Current approximately for mentsocial servicesexpenditures the ten provincesarefromCansimII. Table3850001. v645672. v468873. government logarithm realpercapitaprovincial for healthexpenditures the ten provincesarefromCansimII. v469503. v469818. Fiscal yeardataare associv691853. v645726.v645342.v645458.v645330.v645450. v691922. v645665. Table3850001. v692014. on of Natural All otherexpenditures.Current are forthetenprovinces fromCansim Table3850001. v645788. v645858. provinces v645854.Does Health-Care Expenditures? 139 SpendingCrowdOutOtherProvincialGovernment APPENDIX and VariableDefinitions Data Sources datafromCansimII. v645474.the province-level goods. expenditures.Debt chargesare fromCansimII. Table3850001.v645582. v691830. XXXII. Table dollarfiscal yearprovincial government 3850001. v645722. v645660. v645318. in is subjectto wide swingsfor someprovincesas a resultof movements resourcepricesandthese deflator. cial services.

v3840738. v469404. v470034. of Child.v645515.v691939. v691985.v645449. given of Old. The sourceis in the description all otherexpenditures of above. v3840680.v645581.v691893. v691847. provinces v645713. v692031. Current government specific receivedfor the ten provincesare from CansimII.v468891.v468576. v691962.v687227. v469521. v469089. The natural aged65 andoverto the totalprovincial logarithm the ratioof the provincial population of datais given above. Table3850001. with the mentgeneralpurposetransfers data for the individualprovincesgiven by the series v645250.v3840767. v645514. XXXII. v468144.A zero-onedummyvariablefor each of fourpoliticalparties(Conservaof Social Credit)equalto one whenthe partywas in powerfor the majority the tive. v469719. v3840796.social services. v645712. v645779.v467631. receivedby the provincialgovernment Naturallogarithm total real per capitatransfers of from Transfers. 65 andolderarefromCansimII.VijayMuralidharan MarkParsons and Natural of Residualexpenditures. McMillan. v645382.v687263. series v467199. debtcharges.v645844. v645646. v691916. current fiscal yeardollarvalueof total transfers the sum of generaland from otherlevels of government.The datafor the number people cial population. usingtheGDPpriceindicesfromTable3840036.Current dollarpersonal incomedata logarithm realpercapitapersonal for the ten provincesarefromCansimII. v645316.v467946. with the datafor the purposetransfers individual givenby theseriesv645251. v468774. aged 4 andyoungerare fromCansimII.v687251. calendaryear and zero otherwise.Dates of elections and the victoriouspartywere takenfrom individual Websites. provincialgovernment of Sourcesfor the Data Usedin Table3 to Checkthe Robustness the Results at dollarprovincial Real gross domestic product.v3840825. v468459. of on Debt charges.v687215.Dataon current grossdomesticproduct market pricesare takenfromCansimII.v687299. v469836.The sourcesof the dataused to constructthis variablearedescribedabove.v645317. NDP.140 StuartLandon.seriesv3840622. seriesv691824.Thenatural aged4 andyoungerto the totalprovinlogarithm the ratioof the provincial population of The sourcefor the totalpopulation datais given above. NO.v687275.v645383.Naturallogarithm real per capitaprovincialexpenditure debt service. v3840854.VOL. seriesv467001.ANALYSE DE POLITIQUES.MelvilleL. v645845.v3840883. Variables Explanatory of Personalincome. v692008. dollarfiscal yearprovincial v645580. v469206. on logarithm realpercapitaprovincial government expenditures all goods and andservicesotherthanhealth.The numberof school-aged total population.v691870. Table3850001.PartiQu6b6cois. of 24 school age. seriesv687191. The natural of Percentage logarithm the ratioof the number people aged5 through to the The sourceof the total populationdata is describedabove. v467829. Politicalparty dummy variables.v687239. v645778. v3840651.v645647. v467514. dollarfiscal year provincialgovernCurrent specific purposetransfers receivedfor the ten provincesare fromCansimII.Natural income. v3840709. CANADIAN PUBLIC POLICY . The is otherlevels of government. Thesedataaredeflated v687287. v645448.education.v467316.v468261.The datafor the number peopleaged The sourcefor the totalpopulation population.v687203. 2 2006 .

residual government on current the and expenditure goods expenditures social service expenditures.v1026997. v467610. v2170633.v3840658. v470130.v468540.ThesedataweretakenfromCansimII. v3840774. series v2170417.v467910. v3840745.v470115. v1026965. priceindexfor government andserviceswas employed. are services. NO. v3840687.the ThiswastakenfromCansim seriesv1026901. v467925. 2 2006 . v468555. v3840832.v1027045. v2172145. v3840861. seriesv3840600.v3840629.v736651. priceindexwas employed.v735972.v1026917. v469185. v2170849. The datasourcefor those aged 0-4 is describedabove. v3840803.All government Relativeprices of government pricevariables relativeto the CPIandthe natural log taken of the ratio.Does Health-Care Expenditures? 141 SpendingCrowdOutOtherProvincialGovernment individualsis given by the sum of those aged 0-17 and 18-24 minusthose aged 0-4. province. series v467280. v736922. v2171065. logarithm the officialunemployment for those aged 15 andoverby Unemployment The natural Source: CansimII.v468225. v2172361. v2171713. rate of rate.v469800.v736107.v736515. v469815.v469170.ANALYSE DE POLITIQUES. v1026949. The price of healthcare was represented the health-care by price expenditure in available Cansim seriesv735703.v735837. v468240. v1026981.v468855.v469485. For the expenditurevariables:all other expenditures. education II. Foreducationspending. v469500. VOL. CANADIAN PUBLIC POLICY . v468870. XXXII. II. v736786.v467295.v467595. v1027013.v1027029.v736379.v736243.v1026933. The data for those aged 0-17 and 18-24 are from CansimII.This indexwas not available for the last two years of the sampleand so was updatedusing the percentage changein the government services price index index. v2171281. v3840716. v2171497. v2171929.

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