Politická ekonomie 2025, 73(6):1064-1089 | DOI: 10.18267/j.polek.1474

Effect of Private and Public Health Spending on Health Status: Market or Government Failure?

Sibel Toptaş ORCID..., Nazmiye Tekdemir ORCID..., Pelin Varol İyidoğan ORCID...
Sibel Toptaş, Department of Public Finance, Hacettepe University, Ankara, Turkey
Nazmiye Tekdemir, Department of Public Finance, Kirikkale University, Kirikkale, Turkey
Pelin Varol İyidoğan (corresponding author), Department of Public Finance, Hacettepe University, Ankara, Turkey

On the one hand, government intervention in the functioning of the market is inevitable due to market failure reasons such as uncertainty, asymmetric information and externalities; on the other hand, a high share of government in health services may result in government failure on the respective market. To effectively sustain increasing health spendings, it is vital to determine the optimal level for private and public health spending that have a positive effect on the health market. From this point of view, the objective of our study is to empirically evaluate the impact of public and private health spendings on health outcomes for 33 OECD countries over the period 2000–2021, utilizing the Hansen (1999) panel threshold model approach at different spending levels defined depending on the spending thresholds. In addition, the dynamic panel threshold analysis of Kremer et al. (2013) is also performed to check the robustness of the findings. Our empirical findings reveal that the effect of private health spendings on health status is stronger than that of public spendings. Moreover, when the public health spending exceeds the estimated threshold, it negatively affects health outcomes and increases public spending inefficiency on the health market, which could be evaluated as an indicator of government failure.

Keywords: Health spending, government failure, panel threshold
JEL classification: C23, H11, I18

Received: July 22, 2024; Revised: October 16, 2024; Accepted: November 18, 2024; Published: December 9, 2025  Show citation

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Toptaş, S., Tekdemir, N., & İyidoğan, P.V. (2025). Effect of Private and Public Health Spending on Health Status: Market or Government Failure? Politická ekonomie, 73(6), 1064-1089. doi: 10.18267/j.polek.1474
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