Soft Budget Constraint in Health Care: Evidence from Italy

Abstract

The reforms that have reshaped most public health care system have often been accompained by a process of devolution. However, this process has not always produced the desired effects and the existence of widespread soft budget constraint policies at local level is well documented. In this paper we argue that the soft budget constraint arise from a cooperative game between the authorities that are locally responsible for the provision and finance of health care. Our theoretical model is tested using data for Italian Regions for the period 2002-2006 and our hypothesis is verified. Although the model uses Italy as a benchmark, the results can be easily extended to any federal context where resources are unevenly distributed and preferences are asymmetric.

Keywords: Soft budget constraint, health care provision, patients mobility

JEL Classification: I18, H77