Determinants of state level financing of health: Panel data evidence from Southern Indian states

The paper empirically examines the important factors determining states’ expenditure on medical and public health and total health expenditure, verifies the importance of federal transfers and observes whether health is a luxury in India. To this end, a panel data set for four southern Indian states for the period 1993-94 to 2009-10 is used. Double log multiple panel regression equations have been specified for analysis. Feasible generalized least square estimator has been employed to estimate the coefficients with the option of first order panel specific auto-regressions. The findings suggest that the change in health spending of the southern Indian states are mainly determined by the states’ resource capacity, availability of resources in terms of central transfers and due to the pressure from demand side factor like higher infant mortality rate. The health is not luxury in Indian context, as the income elasticity of aggregate health expenditure is found to be 0.697. The paper calls for strengthening states’ resource capacity, and sanction of more specific purpose central grants for increasing state spending on health.