Death, taxes and healthcare spending - examining the relationship between revenues, rates of different tax channels and various forms of healthcare expenditure

• Main Authors: Ang, Zhi Hong, Peh, Ko Hsu, Goh, Xavier Jia Qing
• Other Authors: Akshar Saxena
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2024
• Subjects: Social Sciences; Health expenditure; Out-of-pocket; Tax revenue; Tax rate; Tax channel affect health expenditure
• Online Access: https://hdl.handle.net/10356/175534
• Institution: Nanyang Technological University

Amongst OECD countries, long-term healthcare expenditure is expected to outpace GDP growth, making it difficult for governments to finance its healthcare expenditure (GHE) while ensuring that out-of-pocket payments (OOP) do not grow too quickly for citizens. Given that tax revenues account for about 90% of government expenditure, we seek to evaluate how changes in total tax revenue and tax rates amongst different tax channels are associated with the fiscal capacity to fund healthcare and alter the substitution between GHE and OOP in OECD countries. We use a two-way fixed effect and staggered difference-in-differences model to quantify the association between tax revenue and rate with health expenditures using data from OECD, IMF, World Bank and World Health Organization. Our results show that personal income tax revenue can decrease OOP through the mediation of the substitution between OOP and GHE. For tax rate, we find this effect in two tax channels. Increasing value-added tax rates is able to reduce OOP vis-a-vis an increase in GHE whereas decreasing corporate income tax rates are associated with an increase in OOP vis-a-vis a decrease in GHE. We believe that our findings can potentially inform healthcare financing policy decisions as governments across the globe seek to keep healthcare affordable amidst rising healthcare costs.