Demographic and economic drivers of healthcare system capacity in Italy: A local projection approach

Research in context: What is already known about the topic? Physician density is influenced by demographic and macroeconomic factors. However, most existing studies analyze these determinants in isolation or focus on short-term correlations, providing limited insight on their dynamic interaction over time. What does this study add to the literature? This study provides the first long-run analysis of physician density in Italy across distinct institutional regimes: the pre-National Health Service (NHS) period (1953-1978), the centralized NHS era (1979-2001) and the decentralized regional phase (2002-2020). Using Local Projections, we show that structural drivers have regime-dependent effects. Importantly, after 2001, demographic aging emerged as a key driver, but its impact has been offset by constraints from rising public debt. What are the policy implications? Rising demand for healthcare services, driven by population aging, is placing increasing pressure on the Italian healthcare system. In a publicly financed Beveridge-type system, addressing these pressures requires adequate fiscal capacity. Yet, in the European context, the scope for expanding public spending is constrained by fiscal rules. This creates a structural tension between growing healthcare needs and the resources available to address them. For this reason, physician workforce planning should be shielded from short-term budget pressures through a targeted fiscal mechanism - plausibly framed, within the broader EU fiscal framework, as a "health investment golden rule" - aimed at preserving long-horizon health-system capacity. This should not be interpreted as a general exemption for healthcare spending, but as a safeguard for expenditure related to workforce planning, training capacity, hiring continuity, and measures to reduce territorial imbalances. Background: Italy has experienced profound demographic, technological and macroeconomic change since 1953, with effects on physician density shaped by changing institutional regimes. Objective: This study identifies the long-term determinants of physician density in Italy and assesses how their influence varies across three regimes: the pre-National Health Service (NHS) period (1953-1978), the centralized NHS era (1979-2001), and the mature decentralized regional phase (2002-2020). Methods: We use annual data (1953-2020) on physicians per 1000 inhabitants (a proxy for healthcare system capacity), age composition, a composite innovation index combining medical patents and total factor productivity (TFP), real GDP per capita, and public debt. Impulse responses are estimated using Local Projections, separately by institutional regime. Results: Before 1978, physician density shows no significant response to aging, GDP or debt shocks. During 1979-2001, a one-standard-deviation (s.d.) shock to GDP growth is associated with a 0.8% increase in physician density over five years. After 2001, a one-s.d. shock to the aging index is associated with a 6% increase in physician density, while a debt shock offsets half of this effect. In the same period, technological innovation is associated with higher physician density. Conclusions: Institutional design affects the elasticity of physician density. Economic expansion supported physician growth under the centralized NHS, whereas in the decentralized regional phase demographic responsiveness is constrained by fiscal pressures. This points to the need for fiscal arrangements that protect long-run healthcare workforce planning, especially in European Beveridge-type publicly financed systems, where service capacity depends on both public budgeting and institutional coordination.