Cross border health care provision: who gains, who loses

The diffusion of the welfare state has produced a widespread involvement of the public sector in financing the production of private goods for paternalistic reasons. In this chapter we model the production of health care as a merit impure local public good whose consumption is subsidized and whose access is free, but not unlimited. The impure local public good aspect means that the production of health care spreads its benefits beyond the geographical boundaries of the Region where it is produced. Finally, we include the (optional) provision of an equalization grant that allows reduction of fiscal imbalance among Regions. In this framework we study the possible effects of cross border provision of health care. We assume that information is complete and symmetric and that there is no comparative advantage in local provision. In this context devolution is always suboptimal for the whole community: the lack of coordination means that the impure public good is under-provided. However, more efficient Regions may be better off because of the impure public good nature of health care.