Why do some governments spend more on their military than others? Leaders make spending decisions based in part on their desire to stay in office, and they may lose office through internal or external processes. Research traditionally focused on external threats as the main determinant of military spending, but internal dynamics are the primary cause of leadership turnover. Coups are the most common reason for autocrats losing power and elections are the most common way democratic leaders, or their parties, lose power. The two processes are often linked. For example, external threat, even absent an attack, can lead to a change in domestic political power. As such, domestic interests, channeled through domestic institutions, are central to understanding military spending. Political science research often emphasizes domestic public opinion and the narrow interests of specific groups as explanations for military spending patterns. Such research finds that changes in public opinion lead to changes in defense spending and that more left-oriented interests favor lower defense spending. Research comparing spending across countries instead focuses on institutions and external threats. Much of this research focuses on the defense burden, which is the ratio of defense spending to gross domestic product. Among the few consistent findings is the fact that democracies maintain a lower defense burden than non-democracies. Higher levels of external threat are also associated with higher defense burdens and smaller countries tend to free-ride in alliances. Additional research examines variations in military spending among autocracies. As with democracies, specific institutions appear to be more important than regime type. Institutions such as legislatures that incentivize leaders to provide public goods are associated with less military spending.
Justin Conrad and Mark Souva
Stephanie J. Rickard
Policies as diverse as tariffs, exchange rates, and unemployment insurance vary across democratic countries. In an attempt to explain this cross-national variation, scholars have turned to the institutions that govern countries’ elections. The institutions that regulate elections, also known as an electoral system, vary significantly across democracies. Can these varied electoral institutions explain the diversity of policies observed? This question remains unanswered. Despite a growing body of research, little consensus exists as to precisely how electoral institutions affect policy. Why is it so difficult to untangle the effects of electoral institutions on economic policy? One reason for the confusion may be the imprecise manner in which electoral institutions are often measured. Better measures of electoral systems may improve our understanding of their policy effects. Improved theories that clarify the causal mechanism(s) linking electoral systems to policy outcomes will also help to clarify the relationship between electoral systems and policies. To better understand the policy effects of electoral institutions, both theoretical and empirical work must take seriously contextual factors, such as geography, which likely mediate the effects of electoral institutions. Finally, different types of empirical evidence are needed to shed new light on the policy effects of electoral institutions. It is difficult to identify the effects of electoral systems in cross-national studies because of the many other factors that vary across countries. Examining within-country variations, such as changes in district magnitude, may provide useful new insights regarding the effects of electoral institutions on policy.
Candyce S. Berger
The U.S. health care system is a pluralistic, market-based approach that incorporates various public and private payers and providers. Passage of Medicare and Medicaid, combined with rapid advances in technology and an aging population, has contributed to rising health care costs that typically increase faster than general inflation. This entry will review health care financing, exploring where the money is spent, who pays for health care, what the reimbursement mechanisms for providers are, and some issues central to the discussion of reform of health care financing. To effectively advocate health care reform, social workers must understand health care financing.
Menzie D. Chinn
The idea that prices and exchange rates adjust so as to equalize the common-currency price of identical bundles of goods—purchasing power parity (PPP)—is a topic of central importance in international finance. If PPP holds continuously, then nominal exchange rate changes do not influence trade flows. If PPP does not hold in the short run, but does in the long run, then monetary factors can affect the real exchange rate only temporarily. Substantial evidence has accumulated—with the advent of new statistical tests, alternative data sets, and longer spans of data—that purchasing power parity does not typically hold in the short run. One reason why PPP doesn’t hold in the short run might be due to sticky prices, in combination with other factors, such as trade barriers. The evidence is mixed for the longer run. Variations in the real exchange rate in the longer run can also be driven by shocks to demand, arising from changes in government spending, the terms of trade, as well as wealth and debt stocks. At time horizon of decades, trend movements in the real exchange rate—that is, systematically trending deviations in PPP—could be due to the presence of nontraded goods, combined with real factors such as differentials in productivity growth. The well-known positive association between the price level and income levels—also known as the “Penn Effect”—is consistent with this channel. Whether PPP holds then depends on the time period, the time horizon, and the currencies examined.
Thomas E. Getzen
During the 18th and 19th centuries, medical spending in the United States rose slowly, on average about .25% faster than gross domestic product (GDP), and varied widely between rural and urban regions. Accumulating scientific advances caused spending to accelerate by 1910. From 1930 to 1955, rapid per-capita income growth accommodated major medical expansion while keeping the health share of GDP almost constant. During the 1950s and 1960s, prosperity and investment in research, the workforce, and hospitals caused a rapid surge in spending and consolidated a truly national health system. Excess growth rates (above GDP growth) were above +5% per year from 1966 to 1970, which would have doubled the health-sector share in fifteen years had it not moderated, falling under +3% in the 1980s, +2% in 1990s, and +1.5% since 2005. The question of when national health expenditure growth can be brought into line with GDP and made sustainable for the long run is still open. A review of historical data over three centuries forces confrontation with issues regarding what to include and how long events continue to effect national health accounting and policy. Empirical analysis at a national scale over multiple decades fails to support a position that many of the commonly discussed variables (obesity, aging, mortality rates, coinsurance) do cause significant shifts in expenditure trends. What does become clear is that there are long and variable lags before macroeconomic and technological events affect spending: three to six years for business cycles and multiple decades for major recessions, scientific discoveries, and organizational change. Health-financing mechanisms, such as employer-based health insurance, Medicare, and the Affordable Care Act (Obamacare) are seen to be both cause and effect, taking years to develop and affecting spending for decades to come.