Linking Poverty With Death

by Colin Gustafson
Wed, 13 Feb 2008 at 10:11 AM

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It's widely known that severe poverty and high death rates go hand in hand. What is an open question, however, is the "causation" between the two, a University of Oregon economist, Mark Thoma (Economist's View), observes: Do ill people die in poverty because they're too unhealthy to work? Or does poverty lead to substandard living conditions, lack of medical care, and early death?

Mr. Thoma looks at an article from a professor of international econonomics at the Graduate Institute in Geneva, Switzerland, Richard Baldwin, for the answer.

Mr. Baldwin writes that the odds of death after age 50 rise dramatically if a person's daily income declines by as little as a few dollars. What's more, women who do not work outside the home, but live with a working-age adult, die earlier if their household's breadwinner makes less money on a daily basis. These findings, which come from a Massachusetts Institute of Technology study of impoverished communities in India, Indonesia, and Vietnam, show it is highly unlikely that their poverty is due to poor health. In fact, if anything it is the opposite: Their poor health arises from being poor. "We are tempted to interpret the evidence accumulated … as revealing, at least in part, that poverty does kill," Mr. Baldwin writes.

MARGINAL TAX RATES FOR RICH AND POOR Some economists argue that higher marginal tax rates discourage wealthier Americans from making more money for fear that the government will simply take a larger cut from their paycheck in taxes. Leftleaning economists defend the marginal rates as a fair way to protect the poor.

A Harvard University economist, Gregory Mankiw (Greg Mankiw's Blog), contends that upwardly mobile Americans at both ends of the income spectrum get hurt by the marginal rate system. For instance, a low-income earner who jumps from a $35,000 salary to $25,000 gets snagged in a so-called poverty trap — forfeiting eligibility for government subsidies while paying higher taxes. This poverty trap, he argues, can effectively cancel out the increase in earnings. Meanwhile, a wealthier person may be dissuaded from jumping to a higher income bracket for similar reasons.

"Have you ever turned down a money-making opportunity that you would have accepted if it paid twice as much?" he asks. "For many high income earners, the answer is yes, which means the tax system is distorting their behavior and reducing the size of the economic pie."

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