Convergence of Public Pharmaceutical Spending in the European Union: Evidence from IMF COFOG Data, 2001–2021
Convergence of Public Pharmaceutical Spending in the European Union: Evidence from IMF COFOG Data, 2001–2021

Summary/Abstract: Government expenditure on medical products, appliances and equipment, a functional category in which pharmaceuticals are by far the largest component, is a distinct but rarely examined part of health budgets in the European Union. This study asks whether cross-country differences in this category have narrowed since the early 2000s. It uses general government spending as a share of gross domestic product from the International Monetary Fund's Government Finance Statistics, organised by function of government, for 25 member states over 2001–2021, and tests for sigma-convergence through trend regressions on annual dispersion and for beta-convergence through a cross-section catching-up regression and a fixed-effects panel with crisis dummies. Dispersion declines over the period, with a trend coefficient of −0.0029 (p = 0.013) for the standard deviation and −0.0020 (p < 0.001) for the coefficient of variation. Initial levels explain 47 per cent of the variation in subsequent growth (β = −0.029, p < 0.001), and the lagged level carries a coefficient of −0.272 (p < 0.001) in the panel of 500 country-year observations, an estimate treated as an upper bound on adjustment speed given the small-sample bias of fixed-effects estimators. The financial crisis and the pandemic raised spending temporarily without reversing convergence. Romania grew at about 8.7 per cent per year between 2001 and 2014 and then contracted as the clawback tax of 2009 matured, ending the period below the sample mean. Catching-up in pharmaceutical budgets is real but fragile, and national pricing and reimbursement policy shapes it as much as income does.

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