How currency and banking crises influence public expenditure on health : Evidence from cross-country data

Understanding the societal impacts of financial crises is important as they can have highly deleterious effects on businesses, households, and economies. In this study, I explore the link between financial crises (i.e., both currency and banking crises) and per capita public expenditure on health. I compile information from 97 developed and developing economies between 1980 and 2012 and use unbalanced panel data. The analysis shows that health expenditure per capita is significantly lower when currency and banking crises have occurred simultaneously in the previous year. This finding is consistent with the conjecture that severe financial crises may hamper tax revenue and compel governments to reallocate resources away from the health sector in a fast-deteriorating fiscal situation. In addition, the study results are robust to placebo tests, and I find that the effects are concentrated in economies that have a potentially larger financial sector. I further provide evidence that the adverse effects are mainly driven by financial and banking crises that both started in the previous year