In 2010, the British government adopted a contractionary fiscal policy (austerity) to try and reduce government debt, which had built up during the Global Financial Crisis. Education and social security (social welfare) bore the brunt of the reductions in government spending, but other areas of spending, such as health, were not immune to the cuts (although health spending did not reduce, the increase in spending from year to year reduced substantially). However, austerity is not a free lunch. What were some of the consequences of the reduction in spending?
That is the question that this discussion paper by Yonatan Berman and Tora Hovland (both King’s College London) takes up, focusing on the impacts on mortality and life expectancy. Berman and Hovland note that the reductions in welfare and health spending did not affect all parts of the country equally. They use the differential impacts between different local authorities (or regions, in some analyses) to evaluate the impact of the austerity measures, in a difference-in-differences research design. That essentially involves comparing areas that were more impacted by austerity to those that were less impacted, between the time before and the time after austerity was introduced in 2010. Berman and Hovland measure exposure to austerity by the reduction in welfare (or health) spending per capita at the local authority level (or region). Their data covers the period from 2002 to 2019 in annual time steps. In addition to a pooled difference-in-differences analysis (which estimates one overall impact of austerity), they also conduct an event study, which estimates the impact of austerity over time. The event study analysis is the more interesting, so that's what I will focus on. The key results for reductions in welfare spending are summarised in Figure 5 in the paper:
The y-axis on the figure shows the coefficient (how much life expectancy changes for a £100 per capita per year reduction in spending, relative to the pre-austerity baseline). The red vertical line shows the point in time where austerity began (in mid-2010). Notice that there is a clear reduction in life expectancy for both males and females, starting from about 2013, and increasing over time. Berman and Hovland note that:
...after the onset of austerity measures, we observe a clear reduction in life expectancy, with a more pronounced effect among females. The results indicate that every £100 per capita per year of lost benefits led to a decrease in life expectancy of approximately 0.5–2.5 months.
The results are qualitatively similar for health spending, as shown in Figure 6 of the paper:
Again, the negative impact on life expectancy is noticeable from 2013, and increases over time. Also, notice that the effect from health spending is much larger in magnitude for each £100 per capita per year reduction in spending. This is not surprising, given that health spending has a more direct impact on health, mortality, and longevity. However, the overall impact of austerity also depends on the amount of spending that was cut, which was much larger for welfare than for health.
Now, it would have been good for Berman and Hovland to explore a little further why the impact of austerity on life expectancy was delayed by two or three years. The delay might raise concerns about whether there were other things that changed between 2010 and 2013 that affected mortality and life expectancy differentially by exposure to austerity. Having said that, we might expect cuts to spending to take some time to filter through into worse health outcomes, and that is also consistent with the increasing magnitude of the impact over time shown in Figures 5 and 6.
Combining the two effects (of welfare spending and health spending), and conducting some back-of-the-envelope calculations, Berman and Hovland find that:
Between 2010 and 2019, austerity measures caused a three-year setback in life expectancy progress, equivalent to about 190,000 excess deaths, or 3 percent of all deaths.
The costs of austerity were quite substantial! However, were there offsetting benefits? Berman and Hovland conduct a Marginal Value of Public Funds (MVPF) analysis, which essentially weighs up the costs and benefits of austerity (in this context, it is basically a cost-benefit analysis for austerity). In this analysis, they find that (when combining both welfare and health effects), the total costs (in terms of the value of life years lost) was £89.6 billion, while the savings on government spending were £38.75 billion. So, every pound of government spending saved had a cost to society of £2.31. On a cost-benefit basis, austerity was not a good deal for society. Moreover, the distributional impacts were important, because:
...poorer local authorities saw smaller increases in life expectancy between 2010 and 2019, or even decreases, compared to richer local authorities (defined by average pay in 2010). These results indicate that austerity measures were not only regressive in their impact on post-tax and transfer income, but they also led to more unequal health outcomes.
If governments are looking to implement policy, ideally those policies shouldn't make society worse off. That should go without saying. Based on this paper, British austerity appears to have made British people significantly worse off, trading lower government spending for higher mortality and lower life expectancy. Berman and Hovland stop short of saying that this was bad policy, instead concluding that:
Paradoxically, this fiscal strategy appears to have contributed to an increase in mortality, potentially offsetting its financial gains. However, it is possible that without austerity, the economic recession in the early 2010s might have been more severe.
It may be the case that the recession would have been worse without austerity, but that is not a certainty. However, given the choice up front, would people living in Britain have preferred a longer recession with fewer deaths, or a shorter recession with more deaths? If austerity really did reduce the length of the recession, the implied tradeoff here is quite stark, and Berman and Hovland's analysis suggests that a longer recession may have been the preferable option.
[HT: Les Oxley]
No comments:
Post a Comment