If you have a sophisticated audience, sure. But outside a few niche subfields, very few people working in policy understand any of those things. My advice is for dealing with an audience of typical policy makers, the kind of people that you have to explain the concept of 'value of statistical life' to. If you give them an expected value, they will mentally collapse it into a point estimate with near-zero uncertainty, and/or treat it as a talking point that is barely connected to any real analysis.
I had hoped that it would be obvious that I was referring to the gross cost, not the net, especially after my post on Life-year Variability. Taxation does not automatically generate good things. Often it is wasted. It is an odd bias, or a failure of decoupling, to assume that 'taxation' always and automatically means 'tax and spend it effectively on good things'.
If a developed government spends a billion dollars on something, we should train ourselves to think 'You just killed about 100 people to do that. Was it worth it?' Public health and foreign aid usually is. Other things, not so much.
It is not about the deadweight loss, that is an entirely separate issue. Even taxation that caused zero deadweight loss would kill people.
Doing the Monte Carlo using my sheet is easier than the method you presented for avoiding the Monte Carlo. It presents the mean, which is the expected value, and also the confidence interval.
There are some audiences that already understand uncertainty and have a SBF-style desire to only maximize expected utility. These audiences are rare. Most people need to be shown the uncertainty (even if they do not yet know they need it).
Some people will want or need to take the 'safe option' with a higher floor rather than try to maximize the expected value.
When done right, the confidence interval includes uncertainty in implementation. If it is done by an A-team that gets things right, you will get better results. Knowing the possible range is key to know how fragile the expected result is and how much care will be required to get things right.
Thanks! That was what I was hoping for. I've learned things since I started this series, and one of the main ones was to be less academic and more practical.
You are right, and I did walk it back a little in the "Deliver what the customer needs" section.
But you would have been more right before I posted the link to that Google Sheets Monte Carlo template. Before I had that, I would often default to a point estimate for very fast jobs. But this tool makes it a lot easier to start with the Monte Carlo to see if it works and is accepted.
"I understand your causal mechanism to be as follows: (1) taxation reduces people's income, (2) having less income makes working risky jobs financially more attractive, (3) this causes more people to die."
No, the mechanism is: (1) taxation takes money from people, (2) people have less money to spend on their own well-being, and (3) this causes death. For example, someone with a take-home pay after taxes of 40k euros will, compared to someone with 60k euros, eat fewer fresh organic vegetables.
"I don't think people taking riskier jobs, as the VSL approach would assume, is the primary negative impact of taxation. Rather, I think reducing people's spendable income makes them less likely to buy healthy food, less likely to live in air-conditioned or heated houses, and less likely to be able to afford medical bills."
This was my point. We need to research how many people these effects kill. But I am forced to use the inaccurate and improper VSL in my cost-benefit analysis because we have no better number.
"I can imagine that taxing people to the point that they enter poverty (as you suggested) makes things a lot worse for them. Most countries have some type of tax-free threshold under which you don't have to pay income taxes. Low incomes are only taxed relatively little."
We agree that taxing poor people has a high mortality cost. But there is also a mortality difference between a middle-class lifestyle and an upper-middle-class lifestyle. Much of the tax burden in developed countries falls on the middle class, and they do suffer meaningfully from those taxes.
"I expect the sign on most taxes to be negative (i.e. reducing mortality), at least when the tax incidence is not on people in poverty and public funds are spent on sensible projects. "
Please see the clarification I added at the beginning of the post. The tax itself will always kill a nonzero number of people; the value of the spending after taxes are raised, and whether it outweighs the cost of the tax, is a different issue.
This post is not about the total aggregate effect of taxing money and then spending it wisely. It is just about the taxation. Yes, Sweden saves more money with its social spending than it kills with its tax system. But Swedish life expectancy would be even higher if the money all came from natural resources, without any taxation.
There are standard approaches for valuing the loss of consumer surplus from price changes. Traditionally, moving money from one entity to another is just a transfer, not a cost, but there is a deadweight loss associated with price changes, and we measure that as a cost. But you have to have an estimate for how many trades will not happen as a result of the price change.
There are no existing metrics for valuing loss of freedom in DALY terms. You'd basically have to do a proper survey, using similar methodology to the one that generates the DALY losses of various health states.
If you have a sophisticated audience, sure. But outside a few niche subfields, very few people working in policy understand any of those things. My advice is for dealing with an audience of typical policy makers, the kind of people that you have to explain the concept of 'value of statistical life' to. If you give them an expected value, they will mentally collapse it into a point estimate with near-zero uncertainty, and/or treat it as a talking point that is barely connected to any real analysis.
I had hoped that it would be obvious that I was referring to the gross cost, not the net, especially after my post on Life-year Variability. Taxation does not automatically generate good things. Often it is wasted. It is an odd bias, or a failure of decoupling, to assume that 'taxation' always and automatically means 'tax and spend it effectively on good things'.
If a developed government spends a billion dollars on something, we should train ourselves to think 'You just killed about 100 people to do that. Was it worth it?' Public health and foreign aid usually is. Other things, not so much.
It is not about the deadweight loss, that is an entirely separate issue. Even taxation that caused zero deadweight loss would kill people.
Thanks. What are some other good ones you have read?
Nice, Thanks!
Several points:
Thanks! That was what I was hoping for. I've learned things since I started this series, and one of the main ones was to be less academic and more practical.
Thanks!
You are right, and I did walk it back a little in the "Deliver what the customer needs" section.
But you would have been more right before I posted the link to that Google Sheets Monte Carlo template. Before I had that, I would often default to a point estimate for very fast jobs. But this tool makes it a lot easier to start with the Monte Carlo to see if it works and is accepted.
"I understand your causal mechanism to be as follows: (1) taxation reduces people's income, (2) having less income makes working risky jobs financially more attractive, (3) this causes more people to die."
No, the mechanism is: (1) taxation takes money from people, (2) people have less money to spend on their own well-being, and (3) this causes death. For example, someone with a take-home pay after taxes of 40k euros will, compared to someone with 60k euros, eat fewer fresh organic vegetables.
"I don't think people taking riskier jobs, as the VSL approach would assume, is the primary negative impact of taxation. Rather, I think reducing people's spendable income makes them less likely to buy healthy food, less likely to live in air-conditioned or heated houses, and less likely to be able to afford medical bills."
This was my point. We need to research how many people these effects kill. But I am forced to use the inaccurate and improper VSL in my cost-benefit analysis because we have no better number.
"I can imagine that taxing people to the point that they enter poverty (as you suggested) makes things a lot worse for them. Most countries have some type of tax-free threshold under which you don't have to pay income taxes. Low incomes are only taxed relatively little."
We agree that taxing poor people has a high mortality cost. But there is also a mortality difference between a middle-class lifestyle and an upper-middle-class lifestyle. Much of the tax burden in developed countries falls on the middle class, and they do suffer meaningfully from those taxes.
"I expect the sign on most taxes to be negative (i.e. reducing mortality), at least when the tax incidence is not on people in poverty and public funds are spent on sensible projects. "
Please see the clarification I added at the beginning of the post. The tax itself will always kill a nonzero number of people; the value of the spending after taxes are raised, and whether it outweighs the cost of the tax, is a different issue.
This post is not about the total aggregate effect of taxing money and then spending it wisely. It is just about the taxation. Yes, Sweden saves more money with its social spending than it kills with its tax system. But Swedish life expectancy would be even higher if the money all came from natural resources, without any taxation.
There are standard approaches for valuing the loss of consumer surplus from price changes. Traditionally, moving money from one entity to another is just a transfer, not a cost, but there is a deadweight loss associated with price changes, and we measure that as a cost. But you have to have an estimate for how many trades will not happen as a result of the price change.
There are no existing metrics for valuing loss of freedom in DALY terms. You'd basically have to do a proper survey, using similar methodology to the one that generates the DALY losses of various health states.