The Impact of Public Health Expenditure on Health Component of Human Capital

Abstract

The analysis of the concept of human capital shows that this form of capital includes a set of different components that are used in economic activities and generates different kind of benefits. Health is one of the main components of human capital. Hence, considering its importance authors of this article tried to investigate the impact of public health expenditure on the health component of human capital. Ordinary least square, fixed and random effects panel data models for 28 European Union countries were used to reach this purpose. The main variables used in this study is life expectancy at birth (related to the health component of human capital) and general government health expenditure. It is known that there are other factors affecting health and human capital in general. Hence variables such as GDP grow, GINI coefficient, education level, alcohol consumption, old age dependency and urbanization rate were added in the models as explanatory variables. The results of the performed study show that public health expenditure has a positive and significant impact on the improvements of life expectancy. Selected fixed-effects panel data models also show significant and positive effects of the GDP growth, old age dependency while a negative effect is identified by alcohol consumption. The existing close relationship between health and education also is confirmed by this study. Results suggest that higher education level is positively and significantly related to life expectancy while a lower education has a negative impact on life expectancy.