Macroeconomic Conditions, Health and Government Policy

July 2006

Christopher J. Ruhm, Department of Economics, University of North Carolina at Greensboro, and NBER.

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Many government policies influence short and medium-run economic performance. Some, such as the monetary and interest rate targets, are explicitly designed to stabilize the economy. Fiscal policy has the potential to play a similar role, although it is not aggressively used for this purpose in the United States. The unemployment insurance and federal income tax systems act as "automatic stabilizers" because they make government spending more expansionary in economic downturns and less so during booms. Other programs, such as the Earned Income Tax Credit (EITC), increase incomes during expansions, when work is easier to find, and so operate in the opposite direction (Edwards, 2005). Spending by local governments also tends to be procyclical, since most states are required to balance their budgets and receive greater tax revenue when the economy is doing well. These policies have been widely examined. Even when their primary purpose is unrelated to macroeconomic performance, the effects on these economic outcomes are at least partially understood. For instance, extensive research examines how the EITC affects labor supply and consumption decisions (Meyer & Rosenbaum, 2001; Eissa & Hoynes, 2004; Edwards, 2004). However, macroeconomic conditions, and the government policies that affect them, may have unexpected and less studied consequences for population health. Health is conventionally believed to improve during economic expansions and deteriorate in downturns. Yet the empirical evidence supporting this view is quite weak and comes from studies containing methodological shortcomings that are difficult to remedy. Recent research, using methods that better control for many sources of omitted variables bias, suggests that mortality decreases and many aspects of physical (although not necessarily mental) health improve when the economy temporarily weakens. This partially reflects reductions in external sources of death, such as traffic fatalities and other accidents, as well as environmental factors like decreases in pollution. However, changes in lifestyles and health behaviors also play a role and the mechanisms for these effects seem less obvious. This chapter summarizes our current knowledge on these issues, beginning with a discussion of the shortcomings of the more extensive analyses using multiple years of data for a single geographic location.

Employment, Unemployment, and the Labor Market, Health, Health Insurance, and Health Care, Social Welfare Programs and Policies