Many developing countries have decentralized the public health care system in the last twenty years, but little empirical research has been conducted on the effects of these fiscal changes. Important policy questions are whether decentralization leads to more or less health care provision, whether more or less public good types of health care are provided, and whether local governments are effective in the provision of health care services. This paper systematically examines these questions using a unique data set on audited annual expenditures combined with secondary census and demographic survey data for
nearly 1600 local governments before and after decentralization in the Philippines. Our statistical
methods correct for the potentially endogenous allocation of funds to the provision of health care by local governments. The results show that although local health expenditures and the share of resources allocated to health increased after decentralization, local governments decreased the share of public good types of health care services. In addition, we find that city/municipality public health expenditures are endogenous and that simple methods that do not correct for this endogeneity can be seriously misleading. Finally, we find that local expenditures are found to increase the use of public health services and the impact of these expenditures on health related outcomes is substantial.
