Negative Effects of High Public Debt for Health Planning: Lessons From Covid-19 Pandemic Crisis in Europe

Abstract

The goal of this study is to analyze why some countries have had a high negative impact of COVID-19 pandemic crisis in terms of fatality rate compared to others. In particular, this study endeavors to verify whether statistical evidence supports the hypothesis that high general government gross debt in countries generates a structural vulnerability in socioeconomic and health systems to face emergencies, such as COVID-19 pandemic crisis. The research setting here analyzes the relationship between general government gross debt (as % GDP), healthcare expenditures per capita, and COVID-19 case fatality in an international context given by European countries. Empirical evidence reveals that European countries having lower COVID-19 fatality rate in 2020 (1.40%, indicated as group 1) had also lower government gross debt as % of GDP both in 2009 (50.79%) and 2019 (46.80%) than countries with higher fatality rate (2.83% given by group 2) that had 81.49% in 2009 and 67.22% in 2019. In addition, group 1 has from 2009 to 2019 a lower growth of government gross debt (% of GDP) given by 0.12 compared to group 2, which experienced a high growth of 0.29 generating a high burden for socioeconomic system and public finance. This structural situation leads countries of group 1 with lower COVID-19 fatality rates to support higher levels of health expenditure per capita (values higher than $3,100 per capita), whereas countries with a higher COVID-19 fatality rate have health expenditure per capita lower than previous group 1 (about $2,530 in 2009 and $2,600 in 2019) also for stringent austerity policies imposed by European Union. Estimated relationship shows that countries with 1% increase in the change of health expenditure per capita over 2009-2019 (predicted values considering in stage 1 the explanatory variable of government gross debt as % of GDP in 2009), it reduces the level of COVID-19 fatality rate by 2.63%. The contribution here expands the knowledge in these research topics by endeavoring to clarify primary causes of vulnerability of countries in crisis management driven by high levels of government gross debt, which deteriorate socioeconomic systems with stringent austerity policies that create constraints to increase health expenditures and improve health planning, reducing preparedness and resilience of countries to face crises similar to COVID-19 pandemic.