Pandemics, Inclusive Growth, and the Role of Public Health Expenditure: Evidence from Local Projections

Selin Ozdamar

No 2026/0412, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Pandemics cause severe shocks that hit vulnerable groups the hardest, yet there is still limited research on how public health spending can help mitigate these unequal impacts. This paper investigates the dynamic impact of pandemic shocks on inclusive growth (conceptualized through GDP per capita, disposable-income inequality, and household consumption) across low and high public health spending environments. Utilizing the local projections method on a balanced panel of 114 countries from 2000 to 2019, we analyze public health spending effect on inclusive growth indicators. Our findings reveal that pandemics trigger significant and persistent losses in output and consumption, particularly in low-income economies. Notably, while disposable-income inequality shows insignificant responses, sharp declines in consumption uncover substantial welfare deterioration that aggregate income metrics often miss. Crucially, we demonstrate that high public health expenditure acts as a critical automatic stabilizer; countries with robust health financing exhibit minimal economic scarring, whereas low-spending regimes suffer deep, lasting contractions. These results position public health expenditure as a strategic investment in economic resilience rather than a mere social cost and emphasize the need for a multidimensional policy focus on health-sector financing to protect inclusive growth against future systemic shocks.

Keywords: Pandemics; Inclusive Growth; Public Health Expenditure; Inequality; Poverty; Local Projections. (search for similar items in EconPapers)
JEL-codes: E62 H51 I15 I18 O47 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-hea
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