Thursday, July 5, 2012

Income Inequality and Health

Some researchers hypothesize that there is a relationship between income inequality and health. The hypothesis suggests that in countries with less income inequality health outcomes will be better. This can provide an argument in favor of income redistribution from upper income individuals to lower income individuals. One interpretation would be higher taxes on higher income individuals with some type of extra support/benefits for lower income individuals.

Many of the studies that have supported this hypothesis have focused on cross-sectional data from multiple countries. One concern that other researchers raise is that when using this type of data, the countries with a great degree of income inequality also have more generous social support programs. In this case, it may not be the lower income inequality that actually results in better health outcomes. Instead, the argument may be in favor of more generous social programs--however we may find the resources for such programs Understanding what is only a correlation and contrasting that with causation is key.

One way to re-assess this question is to use panel data. A recent study by Dr. Mauricio Avendano at the London School of Economics tests this hypothesis. He used data over a number of years from the Organization on Economic Cooperation and Development (OECD). The data are advantageous for addressing the research question of interest to Dr. Avendano as he can look at how changes in income inequality over time within a country leads to any changes. He focused on infant mortality data. He did not find a strong relationship between income inequality and infant mortality.

So, does this completely rule out the possibility that programs leading to less income inequality will benefit health? No. But it does suggest that we should look harder for alternative hypotheses to explain what has been observed in cross sectional data and use this information to motivate policy. Policy that is based on correlations rather than causation is not likely to be efficient policy.

As with medicine, our focus in developing policies with respect to the economy and public health should be evidence based. This is simply one more study that suggests that the evidence to support specific programs that explicitly are aimed at reducing income inequality is not there. To clarify--it may be that the only way to find resources for more generous support programs would be to impose higher taxes on higher income individuals. That could result in less inequality in income that can be consumed. The key to the interpretation of Dr. Avendaon's finding is that while we could argue that reducing the income of high income individuals by a relatively small amount should not hurt them much while giving more resources to those with lower incomes should benefit them a lot may be true, there is nothing specifically about reducing income inequality itself that leads to better outcomes.

6 comments:

  1. nice posting.. thanks for sharing.

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  2. Although you remain objective on the evidence here, you have a fundamental bias as shown by:

    "This can provide an argument in favor of income redistribution from upper income individuals to lower income individuals."

    There is no logic or science behind the conclusion that increased public health (even if it were linked causally to income inequality) supports the policy of income redistribution or any other policy promoting egalitarian. When you make statements like that, you appear to be a political "economist", not a scientific one.

    It should be obvious that increased wealth produces higher individual health. Economically this provides incentive for poorer people to try to produce/earn more to better their health - a specific application of Say's law.

    Scientific evidence for your progressive egalitarian redistribution argument is simply not there, regardless of how much your wish it were. In fact, all economic evidence points to the contrary.

    On your egalitarianism, I propose the question: if medically we could take brain matter from smart people and graft it into dumb people so that we could make everyone the same intelligence, isn't this warranted from the standpoint of "public good"? Why is it OK to rob money from the upper 50% but not from their bodies, given that money is simply a place-holder for future consumption into ones mind or body?

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  3. If I'm understanding this correclty, lowering the inequality is synonymous with wealth redistribution. If we put everyone on an equal playing field, we'll have less inequality. That's a fact. I would say that less inequality implies equality.

    When has redistribution ever effectively motivated someone to achieve anything? What would drive progression in the medical field if doctors are outsourced because they're no longer be paid and all doctors are "treated equal?" [This goes without saying that no two people are truly treated equal nor can they be with hidden, or outright, biases based on experience, education,etc.]

    If I was told I could quit my job and receive "free" health care (sorry neighbor Joe who's actually paying for it based on your new tax increase since you make over $X per year), why work? If I actually believe someone else is going to take care of my problems, why try and fix them? It's in struggling through the problem that I want to find a solution. I rememebr the pain of no insurance due to my unemployment. I was incredibly motivated to study something new when my part-time job wouldn't pay the bills.

    As a responsible citizen I have an obligation to contribute and give something back. Again, based on my understanding, an idea of socialism works if all are working, contributing, etc. If I can't survive in middle class, and I'm too highly taxed to be upper class, where is my incentive to try at all?

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    Replies
    1. Its sad that so many of our decisions are financial ones. We have to weigh everything and its importance by how much it costs. Health is unfortunately included in this.

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