El coste de oportunidad del gasto en defensa: una reflexión sobre la financiación sanitaria en España

Historical contexts influence or set the priorities of public policy makers, war conflicts being one of these circumstances that influence decision-making. Armed conflicts cause the preferences of those who decide what to dedicate the countries’ economic resources to change, an issue widely analyzed by Ortún y Callejón (2023) in his work on war conflicts and planetary well-being.

These changes meet the basic criterion of opportunity-cost public management, that is, if a resource is allocated to a specific issue, it cannot be used to resolve another. Previous literature coins the term “crowding-out”, or displacement, when decision-makers shift spending, for example, on health, to prioritize other sectors, for example, defense.

The relationship between the increase in military spending in times of war and the variation in public spending on health has been previously studied by some authors. Some examples son Ikegami and Wang (2023)who analyzed the displacement of public health spending due to the increase in defense in 116 countries, showing that military spending has a negative and significant relationship with public health spending, especially in low- and middle-income countries. In addition, Grigorakis and Galyfianakis (2024) evaluated how military spending affects out-of-pocket health spending in 29 NATO countries between 2000 and 2021. Their results showed that military spending is positively associated with the increase in out-of-pocket health spending, especially after 2014 (with the Crimean crisis). This suggests that rearmament could generate a financial displacement that results in a greater economic burden on citizens, potentially affecting equity in health access.

On the other hand, in a previous study, carried out by Fan, Liu and Coyte (2018)It was estimated that for every 1% increase in the percentage of military spending over GDP, there is a drop of 0.62% in the percentage of GDP allocated to public health spending, this decrease ranging between 0.962% in lower-middle-income countries and 0.556% in upper-middle-income countries. These authors used a simultaneous equations model establishing an association between the increase in defense spending and the decrease in public investment in health, although the limitations of not being direct causal estimates must be taken into account, and also the heterogeneity in terms of the methodological diversity of the report from the different countries.

However, it is current, both internationally and in Spain, what the percentage of defense spending should be in relation to the country’s GDP. Specifically, Spain is at the crossroads of whether to reach the 5% of GDP that is required of it as a member of NATO.

To put in context, according to official data from the Public Health Expenditure StatisticsPublic health spending in Spain amounted to 97,661 million euros in 2023. In percentage figures of GDP, this represents 6.5% (in current prices), and we see that the maximum was reached in 2020, the year of impact of the Covid-19 pandemic.

Table 1. Public health spending in Spain, 2020-2023Fountain: Ministry of HealthGovernment of Spain

While defense spending is at 0.9% of GDP in 2024 (according to budget accounting), or 1.3% of GDP in 2024 (according to estimates based on NATO methodology), as shown in the report published by AIREF. As Table 2 shows, according to approximate data from the defense spending in SpainDuring the years 2020-2024 (in current prices) defense spending has been increasing progressively, representing from less than 1% of GDP in 2020 to more than 2% of GDP committed by Spain for 2025, still pending execution and quantification of spending in millions of euros.

Table 2. Defense spending in Spain, 2020-2025Fountain: Ministry of Defense, Government of Spain

Therefore, it would be interesting to estimate the potential consequences of assuming a scenario where increases in defense spending are made at the expense of public health spending, holding everything else constant.

What methodology have we used?

To try to measure the possible consequences of displacement or financial shift from defense to health, an approximate calculation was made of the reduction in spending associated with the public health system in Spain.

For this purpose, the study of Fan, Liu and Coyte (2018)who found that in middle- and high-income countries there is a negative trade-off between defense spending and health spending. For every 1% increase in the percentage of GDP allocated to military spending, the percentage of GDP allocated to health spending decreases by 0.556%. This value was applied to a hypothetical projection table for defense spending in Spain, if it had to be increased up to 5%. In this table, hypotheses of GDP increase in years «t» have been created at 3%, 4% and 5% as required by NATO for Spain and its possible decremental consequences on GDP and in millions of euros to be reduced, using the reduction coefficient of 0.556% and, taking direct proportionality as a fundamental assumption.

What results did we obtain?

Table 3. Public spending on defense and health in Spain, 2020-2025Fountain: Ministry of DefenseGovernment of Spain and own estimates. Notes: * Percentages estimated from Fan, Liu and Cote: with each 1% increase in the percentage of military spending on GDP, there is a drop of 0.556% in the percentage of GDP allocated to public health, in upper-middle-income countries.

As we can see in table 3, if the percentage of GDP dedicated to defense spending were hypothetically increased, this would perhaps lead to a reduction in the percentage of GDP dedicated to health.

What could this reduction mean?

If we apply the same direct proportionality, according to which for every percentage point of GDP that increases in defense, it entails a reduction of 0.556% in health, the reduction would be approximately 8,355 million euros for each point of GDP increase:

Notes: *p1: % health spending in 2023 (6.5% GDP), p2: % reduction according to Fan et al. (0.556%), C1: total health spending 2023 (€97,661 million)

Taking into account the main sources of spending of the National Health System in Spain: Hospital Spending, Primary Care, Pharmacy and other areas (long-term care, mental health, prevention, etc.), these 8,355 million would represent the following percentages, using data from 2023:

Table 4. Health spending by main areas of public health spending in Spain, percentage of total spending represented by each area and approximate percentage that the reduction in spending in each area would mean due to financial displacement for every 1% GDP increased in defenseFountain: Ministry of HealthGovernment of Spain.

If we apply the estimates at the regional level, and taking into account the health expenditure made by the two autonomous communities that dedicate the most money to health, such as Catalonia (15,963 million spent on health) and Andalusia (14,178 million spent on health), the reduction would be 52.33% of what was spent by Catalonia or 58.92% of what was spent by Andalusia.

Note: *p: percentage that the reduction would represent, C1: €8,355 million, C2: total investment CC.AA.

Furthermore, continuing with the assumption of keeping everything constant –ceteris paribus-, displacement could generate an increase in out-of-pocket spending, since Spanish citizens could turn to the private sector for access to certain services, as indicated in previous literature. López-López et al. (2021).

Source: Image created by the authors using Artificial Intelligence.

Additional thoughts

Other related issues that may not be taken into account when measuring the investment are; the existence of foreign bases in national territories, since collaboration goes beyond mere economic commitment, with a territorial component as well, integration of forces and expansion of areas of action, an issue in which Spain is also committed to several foreign bases in its territory.

Furthermore, another nuance is the contribution of the countries to the defense and aid of third-party allies of the alliance, as is the case of Ukraine in its current war situation, since it is not taken into account either. That is to say, perhaps not only the defense spending invested nationally is important, but also the contribution to strengthening the alliance’s positions in third countries that are in conflict. According to parliamentary response in the Congress of Deputies and based on data from the Government of SpainThis country contributed 1,072 million euros in military support in 2024, an issue that is not taken into account.

Conclusions:

Currently, the global geopolitical context is putting the focus on the rearmament and increase in defense spending of countries in the face of growing tension and armed conflicts. However, it must be taken into account that public resources are limited, and that an increase in investment in a certain area such as defense spending could entail, a posteriori, According to previous studies, a significant reduction in public spending on health.

Country governments and their policy decisions must take into account the consequences of decisions to direct public spending towards a certain purpose or another, since the diversion of funds towards defense priorities could have consequences on public investment in health. Some authors, such as Ortún and CallejónYou already consider peace and climate stability as a global public good, in a world where the logic of power is making armed conflicts increasingly common, since investing in defense can protect borders, but it can also leave people unprotected.

This requires that when issues about public investment, geopolitical context and defense spending are discussed, the debates must be supported by research, providing figures and possible consequences. Well, these decisions could have repercussions on the economic system and rights in force in some countries like Spain.