Spillovers in a Decentralized Health Market

Marcelo Castro e Fernanda Patriota
We estimate the effects of an increase in health spending and their spatial spillovers on local health outcomes. We disentangle each effect by exploring the Municipalities' Participation Fund (FPM) distribution according to population brackets in a Fuzzy Regression Discontinuity Design, which allows us to explore an exogenous increase in local budget spending. Our results are twofold. First, we find increases in health spending (10 – 11%) and in the number of doctors (16 – 20%) for those towns receiving more per capita FPM. More importantly, those benefited municipalities present a reduction in the infant mortality up to 13% after four periods. Second, we estimate the a negative spatial strategic behavior on health spending for neighbors (- 6%) and that is driven by the smallest neighbor (a – 13%). Nevertheless, those smallest neighbors also respond with a consistent reduction in infant mortality up to 32%. The estimated impact on largest neighbors is less pronounced but with a positive spatial interaction. Last, political alignment and electoral competition are also investigated as well as alternative empirical strategies are addressed.
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