Do Fossil Fuel Subsidies Crowd Out Health Expenditure? A Country-Level Longitudinal Analysis

Annually, countries allocate hundreds of millions of dollars to subsidize fossil fuels, often at the expense of public health and environmental sustainability. This undermines progress toward Sustainable Development Goals (SDG) 3 (Good Health and Well-Being) and 13 (Climate Action). Despite this, the impact of fossil fuel subsidies (FFS) on social protection expenditure, including health, remains poorly quantified. This study aimed to determine whether FFS crowd out health expenditure globally, using panel data from 126 countries covering the period 2015-2019. An instrumental variable approach, relying on countries' exposure to international energy trade and fluctuations in crude oil price, was employed to capture exogenous variation in FFS and estimate a causal relationship. The analyses revealed that in 2019, 17 countries spent more than five percent of GDP on FFS, with FFS expenditure exceeding health expenditure in 15 of those countries. Specifically, a 1% increase in FFS per capita, driven by rising international oil prices and weighted by countries' exposure to international energy trade, led to a 0.05% (95% CI -0.08% to -0.02%) decrease in domestic health expenditure per capita. These findings underscore the detrimental impact of FFS on health expenditure, presenting another reason to eliminate FFS to achieve SDG3 in addition to avoiding further dangerous climate heating.