Full Length Article
Can public spending reduce mortality disparities? Findings from East Germany after reunification

https://doi.org/10.1016/j.jeoa.2014.09.001Get rights and content

Abstract

Following the reunification of Germany, eastern Germans experienced large increases in life expectancy. The introduction of the West German welfare system was accompanied by mortality reductions, particularly for older East Germans. We use this natural experiment to investigate to what extent increased public social security transfers contributed to the rise in life expectancy. We find that every euro invested in East German pensions and health care yielded on average three hours of additional life expectancy. The rise in public spending was particularly beneficial for older age groups. Investments in health care were more beneficial for reducing all-cause mortality in the East. Still, investments in pensions were important for closing the life expectancy gap to West Germany. Our results suggest that public policy measures geared toward equalizing living standards can also help to narrow mortality differentials.

Section snippets

Background

There is an ongoing discussion about the relationship between increases in public spending and increases in life expectancy. Most researchers have emphasized the costs associated with rising life expectancy, mainly due to the expenses incurred by older age groups. Some observers have warned that changing age structures within a population and increasing proportions of older age groups will lead to higher public pension costs (Bongaarts, 2004, Jimeno et al., 2008, Börsch-Supan et al., 2003) or

Life expectancy since the 1970s

The changing institutional arrangements in the East after reunification led to a steep increase in life expectancy among East Germans. Prior to reunification, the gap in life expectancy between East and West Germany was large and increasing. In 1970, the average life expectancy for women in the East and the West was about the same, at around 73.5 years; and the average life expectancy for men in the East was actually 0.8 years higher than the 67.3 years for men in the West. However, between 1970

Germany before reunification

East German social policy was geared toward enabling citizens to contribute to the productivity and prosperity of the socialist economic system (Schmidt, 1999). It was intended not only to increase (female) labor market participation, but also to minimize the risk that people would drop out of the labor market. Thus, East German policy was largely focused on current or future workers. The decline in fertility rates during the 1970s coupled with out-migration led to an increased emphasis on

The reunification of Germany

Immediately after the Wall fell, large amounts of money started flowing from West to East. As part of the economic, social, and currency union between the two parts of Germany, the West German government channeled large sums of money into the East in an effort to equalize the infrastructure and living standards across the country. In the early years, more than 160 billion marks were transferred to the East (Wagner, 2001). The social union led to the introduction of the West German social

Data and Methodology

We analyze public pension and public health care data by single years of age for all-cause mortality. The detailed estimates on individual consumption of public expenditures are obtained from the National Transfer Accounts (NTA) database.3 The NTAs provide detailed information about public transfers to the elderly, including

Results

The difference-in-difference approach is not meant to provide an exact measure how much money has to be invested to increase an individual’s life expectancy by one year. In fact, we would prefer to show the potential impact public transfer could have on survival. Therefore, we use this approach as a first step, to show how much money was invested per capita and the corresponding gains in life expectancy. The results from the difference-in-difference model indicate that public spending

Discussion

In this study, we investigate how social security spending in the form of public pension and health care expenditures affects differences in mortality. For the analysis, we use the natural experiment setting provided by the division and reunification of Germany to illustrate how different institutional settings influence observed mortality patterns. We focus on the years 1980 to 2000 because these decades include a period when the life expectancy gap between the two parts of Germany was

Acknowledgments

The authors are grateful to James W. Vaupel and James E. Oeppen for valuable comments and suggestions and to Jutta Gampe for statistical guidance. We also appreciate the helpful comments by two anonymous referees and by Mauricio Avendano Pabon on an earlier version of the manuscript.

References (53)

  • A. Börsch-Supan et al.

    Pension reform, capital markets and the rate of return

    German Econ. Rev.

    (2003)
  • Busse, R., Riesberg, A., 2004. Health Care Systems in Transition: Germany. WHO Regional Office for Europe on behalf of...
  • Cutler, D.M., Deaton, A.S., Lleras-Muney, A., 2006a. The Determinants of Mortality. NBER Working Papers, No....
  • D.M. Cutler et al.

    The value of medical spending in the United States, 1960–2000

    New Engl. J. Med.

    (2006)
  • A. Deaton

    Health, inequality, and economic development

    J. Econ. Lit.

    (2003)
  • P. Diamond

    National debt in a neoclassical growth model

    Am. Econ. Rev.

    (1965)
  • K. Diehl

    Mögliche Ursachen für die rasche Reduktion der ostdeutschen Übersterblichkeit nach der Wiedervereinigung

    Zeitschrift für Bevölkerungswissenschaft

    (2008)
  • R. Dornbusch et al.

    Economic transition in Eastern Germany

    Brookings Pap. Econ. Act.

    (1992)
  • EU Report 2006, 2006. Current and Prospective Theoretical Pension Replacement Rates. Technical Report, Report by the...
  • M. Farahani et al.

    Effects of state-level public spending on health on the mortality probability in India

    Health Econ.

    (2010)
  • D. Filmer et al.

    The impact of public spending on health: does money matter?

    Soc. Sci. Med.

    (1999)
  • A. Gjonça et al.

    Old-age mortality in Germany prior to and after reunification

    Demogr. Res.

    (2000)
  • Hockerts, H.G., 1994. Grundlinien und soziale Folgen der Sozialpolitik in der DDR. In: Kaelble, H., Kocka, J., Zwahr,...
  • Human Mortality Database, 2013. Human Mortality Database. University of California, Berkeley (USA) and Max- Planck-...
  • E.M. Kitagawa et al.

    Differential Mortality in the United States: A Study of Socioeconomic Epidemiology

    (1973)
  • F.A. Kluge

    The Individual Economic Lifecycle and Its Fiscal Implications in an Aging Germany – Findings from National Transfer Accounts. PhD thesis

    (2011)
  • Cited by (21)

    • Impact of Subsidy on the Use of Personalized Medicine in Breast Cancer

      2022, Value in Health Regional Issues
      Citation Excerpt :

      This can greatly increase treatment uptake and rates of survival among patients with breast cancer. Subsidies increase the ease to access for healthcare through decreasing the cost of treatment and also lead to a general increase in treatment uptake.26 Our study showed that both educational and marital gradients are moderated with the introduction of subsidies to Herceptin.

    • Shorter lives in stingier states: Social policy shortcomings help explain the US mortality disadvantage

      2016, Social Science and Medicine
      Citation Excerpt :

      For example, research by Mackenbach et al. (2011a, b) found that inequality related losses to health amount to more than 700,000 deaths per year and 33 million prevalent cases of ill health in the European Union. Third, it is possible that social policy itself is affected by population-health improvements, such that part of any association between social policy and population health might result from the endogeneity of social policy generosity to the health of the population, and especially the health of older cohorts, which can be expected to be larger in healthier societies, ceteris paribus (Mackenbach et al., 2011a, b; Vogt and Kluge, 2015; Gunasekara et al., 2014). Indeed, the effect of population aging on social policy is well established in the comparative political economy literature (Wilensky, 2002).

    • The weaker sex? Vulnerable men and women's resilience to socio-economic disadvantage

      2016, SSM - Population Health
      Citation Excerpt :

      For completeness we depict the somewhat “melded” experience of Germany (Fig. S10). Like other non-FSU Warsaw pact countries, men faltered in the late 80's and even more so after the collapse of the Berlin wall, but since have followed a more typical “Group 1” pattern as part of greater Germany (Vogt & Kluge, 2014). Because of the historic heavier use of alcohol in this region of the world than any other, and the plausibility of its role as mediator for mortality rate gyrations, toxic levels of alcohol consumption have been the focus of much study (Gerry, 2012; Mckee & Shkolnikov, 2001; Murphy, Bobak, Nicholson, Rose, & Marmot, 2006; Tulchinsky & Varavikova, 1993; Weidner & Cain, 2003; Zaridze et al., 2014; Zatoński, 2011).

    • The underwhelming German life expectancy

      2023, European Journal of Epidemiology
    View all citing articles on Scopus
    View full text