Fiscal federalism vs fiscal decentralization in healthcare: a conceptual framework

Introduction: Fiscal federalism and fiscal decentralization are distinct policy options in public services in general and healthcare in particular, with possibly opposed effects on equity, effectiveness, and efficiency. However, the pertinent discourse often reflects confusion between the concepts or conflation thereof.

Methods: This paper performs a narrative review of theoretical literature on decentralization. The study offers clear definitions of the concepts of fiscal federalism and fiscal decentralization and provides an overview of the potential implications of each policy for healthcare systems.

Results: The interpretation of the literature identified three different dimensions of decentralization: political, administrative, economic. Economic decentralization can be further implemented through two different policy options: fiscal federalism and fiscal decentralization. Fiscal federalism is the transfer of spending authority of a centrally pooled public health budget to local governments or authorities. Countries like the UK, Cuba, Denmark, and Brazil mostly rely on fiscal federalism mechanisms for healthcare financing. Fiscal decentralization consists of transferring both pooling and spending responsibilities from the central government to local authorities. Contrarily to fiscal federalism, the implementation of fiscal decentralization requires as a precondition the fragmentation of the national pool into many local pools. The restructuring of the pooling system may limit the cross-subsidization effect between high- and low-income groups and areas that a central pool guarantees; thus, severely affecting local equality and equity. With the limited availability of local public resources in poorer regions, the quality of services drops, increasing the disparity gap between areas. Evidence from Italy, Spain, China, and Ivory Coast -countries with a strong fiscal decentralization element in their healthcare services- suggests that fiscal decentralization has positive effects on the infant mortality rate. However, it decreases healthcare resources as well as access to services, fostering spatial inequities.

Conclusion: If public resources are and remain adequate, allocation follows equitable criteria, and local communities are involved in the decision-making debate, fiscal federalism -rather than fiscal decentralization- appear to be an adequate policy option to improve the healthcare services and population’s health nationwide and achieve health sector economic decentralization. HIPPOKRATIA 2020, 24(3): 107-113.

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