"Macroeconomics: Recessions, fiscal policy and health", by Marc Suhrcke and Veronica Toffolutti, in the framework of the final conference of the European research project SOPHIE. 29th September 2015, Brussels.

1. Macroeconomics:
Recessions, fiscal policy
and health
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Marc Suhrcke, Veronica Toffolutti
“The impact on health and equity of social and
economic policies”, Brussels, 29.9.2015

2. Focus on two research questions
• Are recessions bad for health?
– with focus on the Great Recession
• Is austerity bad for health?
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3. 3
“It should not come as a surprise if we continue to see
more stresses, suicides and mental disorders”
[…]
“The poor would be hardest hit”
M. Chan, WHO DG, on the financial crisis
“Recession may be a lifestyle blessing in disguise”
T. Cohen NYT, on the same topic
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Is recession bad for health?

4. 4
• Individual vs. aggregate relationships
• Poor vs. rich countries
• Average health vs. health “equity” effects
• “Normal” fluctuations vs. “severe” crisis
• Physical vs mental health
• Crisis with and without the “welfare state”
Source: Suhrcke/Stuckler (2012). Social Science & Medicine 4
It depends…

5. • Increased time for leisure activities
possibly involving more physical activity
more time to seek medical treatment
• Reduced working hours  less stress
• Lower workloads, lower overall economic activity
reduction in work-related accidents;
Fewer motor vehicle traffic accidents
• Reduced incentives for immigration
reduced crowding, fewer imported diseases, etc
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Why might – in theory – recessions
be good for health in some cases?

6. SOPHIE results on the Great Recession
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7. The impact of unemployment on mortality
during the Great Recession (23 EU countries)
Source: Toffolutti/Suhrcke (2014) Prev Med
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8. The effect of the Great Recession
on mortality in EU countries
• An increase of one percentage point in the standardised
unemployment rate has been associated with:
• a statistically significant decrease in the following mortality
rates:
– all-cause mortality (3.4%),
– cardiovascular diseases (3.7%),
– cirrhosis- and chronic liver disease-related mortality (9.2%),
– motor vehicle accident-related mortality (11.5%),
– parasitic infection-related mortality (4.1%)
• But a statistically significant increase in the suicide rate (3.4%)
• The effects were more marked in countries with lower levels
of social protection, compared to those with higher levels
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9. Is austerity bad for health?
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10. 10

11. • What is austerity and how to measure it?
• How to separate effect of austerity from that
of recession?
• We propose a measure of austerity, based on
the macroeconomic literature
– “Blanchard Fiscal Index” (BFI)
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Is austerity bad for health?
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12. The Blanchard Fiscal Index
• Classification of BFI into degree of fiscal impulse according to
Alesina and Perotti (1995) :
– Very loose if the fiscal indicator is less than -1.5 % of GDP
– Loose if the fiscal indicator is between -0.5 and -1.5 % of
GDP
– Neutral if the fiscal indicator is between -0.5 and +0.5 % of
GDP
– Tight if the fiscal indicator is between 0.5 and 1.5 % of GDP
– Very tight if the fiscal indicator is more than 1.5 % of GDP
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13. Does austerity really kill?
Comparing the effect of recession with that of austerity
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Recession
Austerity
Recession
Austerity
Recession
Austerity
Recession
Austerity
-.02 0 .02 .04 .06
Comparison of
the Estimated Coefficients
With a 95% C.I.
Overall Mortality Accident Mortality CVD Suicides

14. The effect of austerity on mortality in the EU
• Partly confirm the notion of adverse health effects
resulting from austerity:
– austerity regimes are associated with an increase in all-
cause mortality (0.58 per cent, significant at 10% level),
– accident mortality (2.52 per cent),
– cardiovascular disease mortality (1.56 per cent)
– and suicide mortality (3.55 per cent).
• Note: effect is partly compensated by a mortality-
decreasing effect of recessions
– with the exception of suicides that appear to receive a
double ‘boost’ from both austerity and recessions.
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Source: Toffolutti/Suhrcke (2015)
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15. Concluding remarks
• The health impact of the recent Great Recession in Europe depends
on the health indicator, country level of social protection, and
individual socioeconomic position and gender.
• Social protection policies appear to be effective in limiting the
sensitivity of mortality to macroeconomic fluctuations.
• Interventions to protect and promote mental health, to prevent
suicides, to treat mental disorders and to prevent harmful drinking
become especially relevant in times of economic hardship.
• Even though recessions may reduce mortality in the short term,
those positive effects may be more than compensated by the
mortality increasing effect of austerity policies, at least as far as
some causes of mortality are concerned.
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16. sophie-project.eu
@sophieproject
info@sophie-project.eu
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17. Supplementary slides
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18. Empirical model
log 𝑀𝑖𝑖 = 𝛼 𝑡 + 𝛾𝛾𝑖𝑖+ 𝛽𝑋𝑖𝑖 + 𝐶𝑖 + 𝜑𝑖 𝑇 + 𝜀𝑖𝑖
M: mortality rate
U: Unemployment rate
X: covariates
C: country-dummy
T: country-specific time trend
Source: Toffolutti/Suhrcke (2014) Assessing the short term health impact of the
Great Recession in the European Union: A cross-country panel analysis. Prev Med
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19. How to measure austerity:
The Blanchard Fiscal Index (I)
• The economic literature has used various measures to quantify
fiscal policy; one of the most used is the Blanchard Fiscal Index
– Simple measure, taking into account cyclical
variations
BFI= (gi,t(Ui,t-1) –ri,t(Ui, t-1)) –(gi, t-1-ri, t-1) (1)
with git as the total current expenditure in % of GDP for country i
at time t, Uit as the unemployment rate for country i at time t and
rit as the total revenues in % of GDP for country i at time t.
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20. Our fiscal policy classification, based on BFI
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country 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Austria N T L N T N N L N N T T T N L L L VT L L
Belgium VT VT VT N N L L L L N T L L N N T N L
Bulgaria L VT VT L VT VT L L L L L L VT VT VT
Denmark T VT N L L L L L L N N VT N L L L L VT VT VT
Estonia VT N L N VT VT L L L L L L L VT VT VT L
Finland VT VT T L L L L L L L N N N L L L L VT N L
France VT VT T L T N L L L L T T L N N VT T N
Germany VT VT T N T T L L L N VT VT VT N L L L N L L
Greece VT T N T VT L L L L VT L L L L VT VT VT
Hungary VT L L L N L L N VT L N T VT VT L
Ireland L L L L L L N T N N N N N VT VT VT VT
Italy T L T T N N N L L L L N L L T VT T N
Latvia VT T N T N VT N L N VT N N L L VT VT L
Lithuania VT L T VT VT VT VT L L L L L L VT VT VT L
Netherlands N VT VT L L L L L L L T VT VT N L L L T VT N
Poland L L L N VT VT VT T VT L L L VT T L
Portugal T N L L L L N VT VT T VT N T L VT VT VT
Romania L L VT VT VT L L VT L VT VT L T
Slovakia VT VT L L T VT VT VT N N L VT L L L L VT VT L
Slovenia L N T N L L L N L L L L L L VT VT L
Spain L L L L L L L VT N L L L VT VT VT
Sweden VT N L T N L L L L N VT T T VT VT N L
United Kingdom VT T L L L L L N L L T L N N T VT N N
year
Note: Missing data for 1992-1994 (Bulgaria, Estonia, Greece, Hungary, Ireland, Lithuania, Poland, Portugal, Romania, Slovenia,
Spain), 2004-2005 (Italy) 2005-2006 (Hungary, Romania), 2007-2008 (Belgium, Bulgaria, France, Latvia, Poland, Romania, Spain,
Sweden, The United Kingdom). * We miss 1991 because we need one year lag to create the BFI index.
(V) T stands for (very) tight, N for Neutral and (V)L for (very)Loose.

21. Empirical model
log 𝑀𝑖𝑖 = 𝛼 𝑡 + 𝛾𝛾𝑖𝑖 + 𝛿1 𝐴𝑖𝑖 + 𝛿2 𝐹𝐹𝑖𝑖 + 𝐶𝑖 + 𝜑𝑖 𝑇 + 𝛽𝑋𝑖𝑖 + 𝜀𝑖𝑖
M: mortality rate
U: Unemployment rate
A: Austerity dummy
FS: Fiscal stimulus dummy
C: country-dummy
T: Year dummy
X: covariates
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Data: 23 EU countries, 1991-2011

22. Cause of death Fiscal Stimulus Austerity Unemployment Rate
Cancer -0.0008 -0.0006 -0.0006
CVD 0.0029 0.0156** -0.0035**
Accidents 0.0058 0.0252** -0.0081***
Suicides 0.0053 0.0355*** 0.0068***
Vehicle Accidents
-0.0075 -0.0180 -0.0215***
Liver Diseases 0.0126 0.0064 -0.0053**
Infectious Diseases
-0.0056 -0.0170 0.0021
All causes
-0.0003 0.0058* -0.0021***
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The effect of austerity on mortality in the EU