We report new evidence on the contribution of health expenditure to increasing life expectancy in OECD countries, differentiating the effects of public and private health expenditures.
A theoretical model is presented and estimated though a cross-country fixed effects multiple regression analysis for a sample of OECD countries over the period 1980-2000.
Although the effect of aggregate health expenditure is not conclusive, public health expenditure plays a significant role in enhancing longevity. However, its influence diminishes as the size of the public health sector on GDP expands, reaching a maximum around the 8 %.
With the influence of public health expenditure being positive, the ambiguous effect of the aggregate expenditure suggests that the weight of public and private health sectors matters, the second having a lower impact on longevity. This might explain the poor evolution of the life expectancy in countries with a high amount of private resources devoted to health. In such cases, an extension of public services could give rise to a better outcome from the overall health investment.