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uecember 2012




1lmoLhy owell-!ackson*, kara Panson*, ul MclnLyre**
* London School of Pyglene and 1roplcal Medlclne
** unlverslLy of Cape 1own







1hls paper has been funded by uk ald from Lhe uk CovernmenL, however Lhe vlews
expressed do noL necessarlly reflecL Lhe uk CovernmenL's offlclal pollcles



B+C.*C.$
LxecuLlve Summary ............................................................................................................................... 3
1 lnLroducLlon ................................................................................................................................... 3
2 8aslc ConcepLs and lacLs ............................................................................................................... 6
2.1 ueflnlLlon ............................................................................................................................... 6
2.2 8aslc facLs .............................................................................................................................. 7
3 Lvldence from Lhe LlLeraLure ......................................................................................................... 9
3.1 Cvervlew ................................................................................................................................ 9
3.2 llscal space and Lax admlnlsLraLlon ..................................................................................... 10
3.3 Maklng Lhe case for healLh .................................................................................................. 17
3.4 llscal space and absorpLlve capaclLy ................................................................................... 18
3.3 lunglblllLy of forelgn ald ...................................................................................................... 19
3.6 CLher Loplcs addressed ln Lhe llLeraLure .............................................................................. 21
4 LducaLlon SecLor .......................................................................................................................... 22
3 Caps and Lhe Way lorward ......................................................................................................... 24
3.1 knowledge gaps ................................................................................................................... 24
3.2 luLure avenues of research ................................................................................................. 23
6 Concludlng 8emarks .................................................................................................................... 27
8eferences ........................................................................................................................................... 28


8#$. +6 .&D'*$E 6#F9,*$ &CG D+H*$
llgure 1: Lconomlc and healLh spendlng lndlcaLors by counLry lncome caLegorles .............................. 8
8ox 1: Challenges and progress ln Lax reform (lMl, 2011) .................................................................. 11
8ox 2: lMl case sLudles of Lhree counLrles LhaL have successfully ralsed levels of Lax revenue ......... 13
8ox 3: Larmarked Laxes (SLenberg eL al, 2010) .................................................................................... 13








3


@H*%9.#3* (9II&,J
CounLrles Lhe world over are faced wlLh Lhe challenge of flndlng adequaLe resources Lo flnance Lhelr
healLh sysLem. lncreaslng aLLenLlon ls Lhus belng glven Lo Lhe quesLlon of how Lo lncrease flnanclal
resources Lo healLh - and speclflcally how Lo expand flscal space for healLh. llscal space for healLh
refers Lo Lhe capaclLy of governmenL Lo provlde addlLlonal budgeLary resources for [healLh] wlLhouL
any pre[udlce Lo Lhe susLalnablllLy of lLs flnanclal poslLlon."

1here are Lyplcally flve ways Lo generaLe flscal space ln healLh: 1) conduclve macroeconomlc
condlLlons, ln parLlcular Cu growLh and Lax revenue, 2) prlorlLlsaLlon of healLh wlLhln Lhe
governmenL budgeL, 3) earmarked Laxes for healLh, 4) exLernal granLs for healLh, and 3) efflclency
lmprovemenLs ln Lhe healLh secLor. As ls clear from Lhese plllars, whlle flscal space may be a
relaLlvely new concepL, Lhe subsLance underplnnlng lL concerns lssues LhaL pollcymakers have had Lo
grapple wlLh for decades.

1hls paper surveys Lhe llLeraLure on flscal space for healLh. Cne body of llLeraLure conLalns papers
and reporLs LhaL use Lhe language of flscal space. 1he second relaLes dlrecLly Lo Lhe flve ways of
generaLlng flscal space for healLh wlLhouL necessarlly uslng Lhe Lermlnology of flscal space. 1hls
llLeraLure ls so wlde-ranglng LhaL lL ls dlfflculL Lo revlew. lor Lhls reason aLLenLlon ls glven Lo speclflc
Lhemes: 1) ways Lo lncrease Lax revenue and efflclency ln Lax collecLlon, 2) how healLh mlnlsLrles can
make Lhe case for lncreased governmenL budgeL allocaLlons Lo healLh, 3) Lhe role of absorpLlve
capaclLy ln expandlng flscal space, and 4) Lhe exLenL Lo whlch exLernal ald lnfluences how much
governmenLs spend on healLh. CLher recurrlng Lhemes ln Lhe llLeraLure are also dlscussed and
comparlsons wlLh Lhe educaLlon secLor are made.

A number of key flndlngs are hlghllghLed. llrsL, few sLudles scraLch below Lhe surface Lo examlne
!"# counLrles have expanded flscal space for healLh. CurrenL knowledge on Lhls quesLlon ls
summarlsed under each of Lhe four focal Lhemes ln Lhe maln body of Lhe paper. AL a baslc level,
many counLrles lack Lhe daLa Lo bulld an accuraLe plcLure of Lhe sources of flnanclal resources for
healLh over Llme. 1hls ls a prerequlslLe for undersLandlng whaL pollcles, measures, or declslons have
been successful (or unsuccessful) ln generaLlng greaLer flscal space. Lmplrlcal work aL Lhe counLry
level has Lended Lo be forward-looklng assessmenLs of poLenLlal ways Lo lncrease flscal space raLher
Lhan rlgorous examlnaLlons of how a parLlcular counLry has lncreased flscal space.

Second, much of Lhe llLeraLure on flscal space has LllLed Lowards lmprovlng our concepLual
undersLandlng of flscal space. useful advances have been made ln concepLuallslng whaL flscal space
means for Lhe healLh secLor and, ln parLlcular, how lL can provlde a framework Lo assess how Lo
lncrease flnanclal resources for healLh. 8uL Lhls ofLen ralses more quesLlons Lhan lL answers. lor
example, how does a governmenL lncrease Cu growLh and Lax revenues? WhaL facLors lead a
governmenL Lo glve more prlorlLy Lo healLh? WhaL ls Lhe feaslblllLy and effecLlveness of
lmplemenLlng dlfferenL earmarked Laxes for healLh? ALLempLs Lo use lmproved concepLual
undersLandlng Lo underLake rlgorous emplrlcal work remalns ln lLs lnfancy.

4

1hlrd, Lhe llLeraLure frames flscal space elLher as a macroeconomlc lssue or wlLh speclflc reference Lo
Lhe healLh secLor. 1here ls very llmlLed analysls of flscal space ln oLher secLors, such as educaLlon
(see SecLlon 4). lL appears LhaL Lhe healLh secLor has been qulckesL ln reallslng Lhe relevance of flscal
space, perhaps because Lhere ls an lmpresslon ([usLlfled or noL) LhaL healLh spendlng has hlsLorlcally
been lower Lhan requlred ln developlng counLrles.

uesplLe Lhe challenges of conducLlng a llLeraLure revlew of Lhls naLure, a number of knowledge gaps
and fuLure avenues for research emerge. 1hese lnclude: 1) counLry experlences wlLh lnnovaLlve
domesLlc flnanclng Lools for healLh, 2) ln-depLh sLudy of how a counLry has achleved susLalnable
lncreases ln healLh spendlng, 3) cross-counLry analysls of Lhe maln sources of growLh ln healLh
flnanclng, 4) counLry level analysls of Lhe maln sources of growLh ln healLh flnanclng, and 3) a cross-
counLry analysls of how responslve governmenL healLh spendlng ls Lo Lhe macroeconomlc
envlronmenL.
3

A <C.,+G9%.#+C
CounLrles Lhe world over are faced wlLh Lhe challenge of flndlng adequaLe resources Lo flnance
Lhelr healLh sysLem. 1he problem ls mosL acuLe ln low-lncome counLrles where Lhe burden of
dlsease ls hlghesL and resource needs are greaLesL. lL ls well esLabllshed LhaL Lhere exlsLs a large
flnanclng gap Lo provlde Lhe mosL baslc package of healLh servlces ln Lhese counLrles (1askforce on
lnnovaLlve lnLernaLlonal llnanclng for PealLh SysLems, 2009). lncreaslng aLLenLlon ls Lhus belng
glven Lo Lhe quesLlon of how Lo lncrease flnanclal resources Lo healLh - and speclflcally how Lo
expand flscal space for healLh.

llscal space for healLh refers Lo Lhe capaclLy of governmenL Lo provlde addlLlonal budgeLary
resources for [healLh] wlLhouL any pre[udlce Lo Lhe susLalnablllLy of lLs flnanclal poslLlon" (Peller,
2006). 1he focus on governmenL ls warranLed for several reasons. llrsL, Lhe governmenL ls a ma[or
source of healLh flnanclng, even ln counLrles domlnaLed by prlvaLe healLh provlders. Second, more
Lhan anyone else, lL has Lhe ablllLy Lo ensure flnanclal proLecLlon and lnfluence efflclency and
equlLy Lhrough lLs use of pollcy. llscal space ls essenLlally a framework wlLh whlch Lo explore how
a governmenL can expand Lhe resource envelope for healLh ln a susLalnable manner. 1he debaLe
has aL Llmes been heaLed, plLchlng Lhose ln favour of more llberal spendlng pollcles agalnsL Lhose
who argue LhaL flscal consLralnLs musL be respecLed (Coms and Schrecker, 2003, Sarblb and Peller,
2003).

lL ls lnLeresLlng Lo noLe LhaL Lhe language of flscal space has been enLhuslasLlcally adopLed ln
cerLaln clrcles, and less so elsewhere. 1he World 8ank frequenLly uses Lhe Lerm ln lLs publlcaLlons
and has lnvesLed ln counLry assessmenLs of flscal space for healLh. Slmllarly, Lhe lMl makes much
of Lhe concepL, alLhough mosLly when dlscusslng macroeconomlc lssues (CsLry %& '(), 2010). ln
conLrasL, flscal space appears noL once ln Lhe World PealLh 8eporL 2010 on unlversal coverage
desplLe Lhe facL LhaL lLs focus ls on healLh sysLem flnanclng (WPC, 2010).

1he purpose of Lhls paper ls Lo survey Lhe llLeraLure on flscal space for healLh. 8ecause lL ls a wlde-
ranglng sub[ecL we purposlvely selecLed Lhe followlng Lhemes: 1) ways Lo lncrease Lax revenue and
efflclency ln Lax collecLlon, 2) how healLh mlnlsLrles can make Lhe case for lncreased governmenL
budgeL allocaLlons Lo healLh, 3) Lhe role of absorpLlve capaclLy ln expandlng flscal space, and 4) Lhe
exLenL Lo whlch exLernal ald lnfluences how much governmenLs spend on healLh. CLher recurrlng
Lhemes ln Lhe llLeraLure are also dlscussed. Clven Lhe slmllarlLles beLween educaLlon and healLh, a
furLher ob[ecLlve was Lo explore how Lhe concepL of flscal space has been used ln Lhe educaLlon
secLor.

1he paper ls sLrucLured as follows. SecLlon 2 deflnes flscal space and presenLs baslc daLa on healLh
spendlng ln counLrles grouped by level of lncome. SecLlon 3 summarlses Lhe evldence from Lhe
llLeraLure on flscal space for healLh, glvlng parLlcular aLLenLlon Lo Lhe four focal Lhemes. SecLlon 4
examlnes wheLher and how Lhe concepL of flscal space has been used ln Lhe educaLlon secLor.
SecLlon 3 dlscusses Lhe gaps ln Lhe llLeraLure and lays ouL poLenLlal areas of fuLure research.
SecLlon 6 concludes.


6

K L&$#% B+C%*).$ &CG "&%.$
KMA N*6#C#.#+C
llscal space can be deflned as Lhe avallablllLy of budgeLary room LhaL allows a governmenL Lo
provlde resources for a glven deslred purpose wlLhouL any pre[udlce Lo Lhe susLalnablllLy of a
governmenL's flnanclal poslLlon" (Peller, 2003, Peller, 2006). 8y creaLlng flscal space, furLher
resources can be made avallable Lo lncrease governmenL spendlng or reduce LaxaLlon on an
acLlvlLy deemed lmporLanL. llscal space ls closely llnked Lo Lhe lssue of flscal susLalnablllLy - whlch
concerns Lhe capaclLy of governmenL Lo flnance governmenL spendlng, meeL lLs debL servlce
obllgaLlons and ensure lLs overall solvency. When applled Lo Lhe healLh secLor, Lhe lnLenLlon ls Lo
lncrease flnanclal resources for healLh over Lhe shorL Lo medlum Lerm ln a way LhaL ls conslsLenL
wlLh a counLry's macroeconomlc fundamenLals such LhaL Lhe long-Lerm solvency of Lhe
governmenL and lLs economlc poLenLlal ls noL [eopardlsed (Adam and 8evan, 2003). lL ls also
presumed LhaL any lncrease ln healLh spendlng does noL crowd-ouL oLher prlorlLy secLors.

Whlle Lhls deflnlLlon of flscal space ls falrly lnLulLlve, lL ls worLh noLlng oLher deflnlLlons are used. ln
Lhe macroeconomlc llLeraLure, flscal space has Laken on a raLher dlfferenL, alLogeLher more
Lechnlcal meanlng. When counLrles have hlgh debL levels, above Lhelr hlsLorlcal Lrack record, debL
susLalnablllLy ls aL rlsk. lf Lhe debL llmlL ls Lhe polnL aL whlch a counLry's solvency ls called lnLo
quesLlon, flscal space refers Lo Lhe dlfference beLween currenL debL and Lhls llmlL (CsLry %& '(),
2010). AmongsL clvll socleLy, less of an emphasls ls placed on Lhe need for macroeconomlc sLablllLy
- speclflcally, Lhe need Lo meeL lMl macroeconomlc condlLlons (AcLlonAld, 2007)

1he flscal framework, flrsL developed by Peller (2006) and furLher adapLed by 1andon eL al (2010),
refers Lo Lhe followlng flve ways of generaLlng flscal space ln healLh: 1) conduclve macroeconomlc
condlLlons, ln parLlcular Cu growLh and Lax revenue, 2) prlorlLlsaLlon of healLh wlLhln Lhe
governmenL budgeL, 3) earmarked Laxes for healLh, 4) exLernal granLs for healLh, and 3) efflclency
lmprovemenLs ln Lhe healLh secLor. Peller (2006) also menLlons borrowlng (from boLh domesLlc
and forelgn lenders) and Lhe prlnLlng of money, buL Lhese are unllkely Lo be vlable long Lerm
sources as Lhey LhreaLen macroeconomlc sLablllLy. 1he flrsL Lhree plllars" above are Lyplcally
regarded as belng ouLslde Lhe (sole) preserve of Lhe healLh secLor, whlle Lhe laLLer Lwo are more
easlly lnfluenced by acLors ln Lhe healLh secLor. 1he flve plllars should noL be regarded as
lndependenL of each oLher. lnLeracLlons are posslble - for example, exLernal granLs for healLh may
encourage a governmenL Lo spend less of lLs own resources on healLh.

7

ln assesslng Lhe poLenLlal for a counLry Lo lncrease flscal space for healLh, 1andon eL al (2010)
suggesL Lhree elemenLs Lo a baslc approach. llrsL, Lhere needs Lo be a dlscusslon of Lhe need for
flscal space ln healLh and Lhe facLors LhaL are drlvlng Lhe requlremenL for lncreased resources.
Second, Lhere needs Lo be a sysLemaLlc analysls of Lhe poLenLlal of Lhe flve plllars Lo creaLe flscal
space. 1hlrd, Lhere needs Lo be a dlscusslon of Lhe feaslblllLy of varlous opLlons Lo lncrease flscal
space, lncludlng Lhe ways of addresslng obsLacles. A slmple assessmenL of flscal space ln healLh
provldes a useful benchmark of whaL mlghL be aLLalnable ln low lncome counLrles (Wllllams and
Pay, 2003). PlsLorlcal daLa shows LhaL governmenLs have rarely spenL more Lhan 4.3 Lo 3 percenL
of Cu on healLh. 1hls upper llmlL would lmply, for example, a flvefold lncrease ln governmenL
healLh spendlng per caplLa ln lndla and a Lhreefold lncrease ln Cambodla (1andon and Cashln,
2010).

lL ls lmporLanL noL Lo vlew Lhe creaLlon of flscal space as an end ln lLself. Pow addlLlonal resources
are spenL - and wheLher Lhey are able Lo be spenL - ls crlLlcal lf Lhe openlng up of flscal space ls Lo
generaLe lmprovemenLs ln healLh. lndeed, greaLer efflclency ln how money LranslaLes lnLo healLh
lmprovemenLs can lLself generaLe flscal space, as shown ln Lhe above framework.

KMK L&$#% 6&%.$
1hls secLlon sheds llghL on some baslc facLs concernlng economlc performance and healLh
spendlng ln counLrles around Lhe world. Speclflcally, llgure 1 shows Lrends ln Cu per caplLa
growLh (Lop lefL), Lax revenue as a proporLlon of Cu (Lop rlghL), governmenL healLh spendlng as a
proporLlon of LoLal governmenL spendlng (boLLom lefL) and governmenL healLh spendlng per caplLa
ln uS$ (boLLom rlghL). CounLrles are grouped accordlng Lo World 8ank lncome caLegorles. 1hese
key lndlcaLors relaLe closely Lo a counLry's ablllLy Lo lncrease flscal space ln healLh.

As shown ln llgure 1, Cu per caplLa has grown ln all lncome groups beLween 2000 and 2008. 1he
besL economlc performance has been ln upper mlddle and lower mlddle lncome counLrles. 1rends
ln Lax revenue as a proporLlon of Cu suggesL LhaL governmenL auLhorlLles ln lower mlddle and
upper mlddle counLrles have been able Lo lmprove Lhelr Lax revenue capaclLy. 1he level ln hlgh
lncome counLrles has remalned flaL, alLhough conslsLenLly hlgher Lhan any oLher counLry grouplng
(daLa are mlsslng for low lncome counLrles). CovernmenL prlorlLlsaLlon of healLh, as demonsLraLed
by Lhe graph ln Lhe boLLom lefL, has lmproved over Llme ln all lncome groups. Cbserve also LhaL
socleLles' preference for more publlc flnanclng of healLh lncreases wlLh lncome. llnally, Lhe graph
ln Lhe boLLom rlghL shows LhaL governmenL healLh spendlng per caplLa has rlsen ln all lncome
groups buL remalns low ln Lhe pooresL counLrles. CrowLh ln governmenL healLh spendlng has been
greaLesL ln lower mlddle lncome counLrles, where lL has more Lhan Lrlpled beLween 2000 and
2008.

llgure 1 shows encouraglng slgns of a Lrend Lowards greaLer flscal space ln Lhe healLh secLor for
Lhe average counLry ln each lncome group. naLurally, Lhese daLa provlde only an lncompleLe
plcLure, one LhaL could be lmproved Lhrough furLher examlnaLlon of counLry level daLa (eg. WPC's
naLlonal PealLh AccounLs daLabase) over Llme. Powever, such lnformaLlon wlll have lLs llmlLs ln
explalnlng !"# counLrles have generaLed greaLer flscal space.