Does Austerity Kill?

FISCAL POLICY HAS AN IMPACT ON MORTALITY RATES AND SUICIDE RATES. FISCAL CONTRACTION OR EXPANSION CAN CAUSE HEALTH EFFECTS

by Veronica Toffolutti, Bocconi Department of Social and Political Sciences
Translated by Alex Foti


Many countries implemented austerity measures to deal with the recession by increasing taxation and/or reducing social spending. This generally caused a reduction in consumption, which in turn caused a drop in gross domestic product. However, the empirical evidence concerning the potential effects of fiscal policy on people’s health is very limited, despite the interest taken by many researchers and policymakers, including former director of the IMF Dominique Strauss-Kahn, who declared at the height of the Great Recession: “The consequences of austerity policies in terms of human lives could give rise to a real tragedy.”

In the study “Does austerity really kill?” I published together with Marc Suhrcke (Center for Health Economics, University of York and Luxembourg Institute of Socio-Economic Research) on Economics & Human Biology we examine, considering data coming from 28 EU countries for the 1991-2013 period, the correlation between fiscal policy (austerity or fiscal stimulus) and public health, by using seven specific mortality rates by cause and the total mortality rate as synthetic health indicators. In particular, we distinguish the effect of fiscal policies from that of economic fluctuations, such as for example periods of boom or crisis.

The results are quite complex, and offer only partial confirmation of theoretical hypotheses. First, austerity regimes are really associated with an increase in the suicide rate and the total mortality rate, but periods of fiscal stimulus lead to an increase in specific mortality rates, in particular those linked to road accidents and cirrhosis and other chronic liver diseases. Secondly, our work corroborates previous results regarding the association between economic fluctuations and mortality rates; in fact, with the exception of suicides, most mortality rates tend to decrease as the unemployment rate increases, thus compensating for the negative effects of fiscal policy. Suicides, however, are a case apart, as they respond to both unemployment rate increases and austerity policies.

There are various mechanisms that can explain the positive correlation between austerity and mortality. For example, austerity measures could increase the stress to seek a new job, thus influencing the psychological health of individuals, increasing their risk of committing suicide. Moreover, during periods of austerity the purchasing power of individuals is likely to be hit by a double whammy: taxation increases as social protection is lowered. The latter is also associated with a deterioration of health services, such as screening for infectious diseases.

In conclusion, fiscal policy does have an impact on health, but we are only beginning to understand how and further research is needed to understand the adverse effects in greater detail.