The economic impact of long-term care services

Abstract

Projections show sharp increases in public spending on long-term care (LTC) services across Europe. However, a purely cost-based focus on LTC services is economically misleading. Private and public expenditure on LTC services directly and indirectly generates income in the form of salaries, taxes, and social security contributions. The aim of this paper is to quantify the economic impact and multipliers of LTC services for Austria. Based on an econometric regional Input-Output model for Austria, we estimate the direct, indirect, and induced effects of public and private expenditures on value added, employment, taxes, and social security contributions. According to our results, each euro spent on LTC services is associated with domestic value added of € 1.70; 70 cents per euro spent flows into public budgets in the form of taxes and social security contributions. The economic multipliers of the LTC services are comparatively high due to the high share of wages and salaries in direct expenditure and the associated high direct value added. Public expenditure on professional care services should therefore not be regarded merely as a cost factor in the public budget. Rather, this rapidly growing economic sector is also an increasingly important economic factor in a time of ageing societies. While the model does not provide information on the causal economic effect of the LTC sector, the findings are still highly important for planners of LTC reforms, as they provide information on the total value added associated with LTC expenditures and on the total number of jobs that these expenditures sustain.