Health Returns to Public Funds Across Tiers of Local Government: The Case of the Philippine Devolution

In this paper, I estimate the health return to local funds across tiers of local government in the context of the Philippine fiscal and administrative devolution. After 1992, the Philippine national government increased markedly the amount of national tax revenues transferred in block grants to the highest level of local government -the provinces and cities. The fiscal devolution coincided with the transfer of administrative responsibility for the public health care system only for the provinces. The formula used to distribute funds among provinces and cities includes a portion based on equal sharing and another on land area, providing exogeneity in the per capita block grants (conditioning on initial population density). By replicating the national government's procedure for allocating the transfers to local governments, I calculate the block grant to each province and city as well as the local governments on lower tiers. In a fixed effects model, I then estimate the effect of the total province/city per capita block grant on infant mortality rates using annual vital statistics data. My estimates suggest that 30% of the decrease in the registered infant mortality rate in cities between 1990 and 1997 is explained by the increase in the per capita transfer over that period. By contrast, I do not find a significant effect for provinces, suggesting that the return to local funds is higher when there are not large-scale administrative changes occurring simultaneously. ----------------------------------------------------*E-mail: [email protected]. Special thanks are due to David Cutler, David E Bloom, and Joe Newhouse. I also thank participants at the Harvard Health Policy seminar and many Philippine government officials who were generous with their time and knowledge. I gratefully acknowledge funding support from the Graduate School of Arts and Sciences at Harvard University and office support from the Office of Tax Policy Research at the University of Michigan.