State Heterogeneity in Public Health Expenditure Effects on Mortality in India: The Role of Institutional Quality

Debates around the effectiveness of public health expenditure remain unresolved, particularly in low- and middle-income countries where fiscal space is limited and health inequalities are stark. This study investigates how state-level public spending influences mortality in India, while explicitly accounting for governance quality and subnational heterogeneity. Using microdata from the National Family Health Survey 5 combined with state-level fiscal and institutional indicators, the analysis applies a multilevel probit model with random intercepts and slopes to capture both baseline mortality differences and variation in the returns to health spending across states. The results show that public expenditure significantly lowers mortality probabilities, but its impact is highly uneven. States with stronger governance, especially higher government effectiveness and adherence to rule of law, achieve greater health gains from similar spending levels, while weaker states lag behind. Mortality disparities are also evident across socio-economic groups, age cohorts, gender, and rural–urban locations, with evidence that public spending helps narrow gender gaps in survival outcomes. These findings underscore that expanding health budgets alone is insufficient. Effective mortality reduction in India requires parallel investments in governance, institutional capacity, and accountability, alongside reorienting spending to address emerging challenges such as non-communicable diseases and neglected urban health systems. The paper contributes to the literature on fiscal federalism and health by demonstrating that while financial resources matter, their effectiveness is fundamentally shaped by the quality of institutions at the state level.