Explaining variations in government health expenditure: evidence from Canada

We examine factors affecting Canadian government health expenditure during 1968-2022. Our data provide evidence on expenditure decisions from 10 autonomous but similar healthcare systems operating under common standards and regulations. We show that expenditure-income elasticity as measured in the literature is sensitive to controls for the social determinants of health, rising from 0.23 to 0.35. We also extend the literature with novel results for total and for specific expenditure categories that have grown unevenly in recent decades finding higher elasticity for physician than for drug or hospital spending. Physician supply increases both hospital and physician expenditures. Mid-life population shares, often overlooked in the literature, explain changes in the rapidly growing drug expenditure category. Our relatively long time series allows us to illustrate the sensitivity of results to dynamic specifications, account for a structural break in 1996 and show that income elasticity has risen over time.