AbstractThis paper provides econometric evidence linking a country's per capita government health expenditures and per capita income to two health outcomes: under‐five mortality and maternal mortality. Using instrumental variables techniques (GMM‐H2SL), we estimate the elasticity of these outcomes with respect to government health expenditures and income while treating both variables as endogenous. Consequently, our elasticity estimates are larger in magnitude than those reported in literature, which may be biased up. The elasticity of under‐five mortality with respect to government expenditures ranges from −0.25 to −0.42 with a mean value of −0.33. For maternal mortality the elasticity ranges from −0.42 to −0.52 with a mean value of −0.50. For developing countries, our results imply that while economic growth is certainly an important contributor to health outcomes, government spending on health is just as important a factor. Copyright © 2006 John Wiley & Sons, Ltd.