Higher taxes on goods and services linked with higher rate of infant deaths

15 May 2015

A new study published in The Lancet suggests that taxes on goods and services could potentially increase infant mortality in developing countries because they make it harder for poor families to afford food and basic health care.

The researchers from Oxford University, Stanford University, and the London School of Hygiene and Tropical Medicine examined different healthcare funding systems used by low-income and middle-income countries. Using data on 89 countries from 1995 to 2011 from World Bank Indicators and the Organisation for Economic Co-operation and Development, the team find that an additional $100 per person from taxing goods and services can be linked with a significantly higher rate of infant mortality at around one death per 2,000 live births.

The report’s publication coincides with the convening of the World Health Organization’s World Health Assembly in Geneva, where health ministers from over 150 countries will meet to discuss how to speed up progress towards universal health coverage. The research paper finds that increasing tax revenues will be critical to developing health systems in low-income and middle-income countries, but that some taxes work better than others.

Lead author Dr Aaron Reeves, from the University of Oxford’s Department of Sociology, said: ‘Reducing infant mortality rates is a core objective for the global health community. Our research suggests that progressive tax policies, which protect the poor from increased costs, might significantly speed up progress towards these goals. Hiking up taxes on goods and services to pay for healthcare might have unintended consequences, putting a heavier burden on poorer households who end up buying less food or not accessing healthcare when they need it.’

Dr Sanjay Basu, a co-author from Stanford University, said: ‘This analysis very clearly reveals that domestic tax revenue collection—however unsexy a topic—is the very cornerstone for how we pay for universal healthcare across the world. Amidst the rhetoric about philanthropy and social entrepreneurship, how we find a good standard funding model should be at the heart of this debate about how to improve healthcare for all.’

The researchers’ statistical model estimates that overall, for every increase in tax revenues from all sources of US $100 per person per year, an additional US$9.86 went towards government health spending (after GDP increases were taken into account). The strong link between this form of taxation and increased government health spending is not found for consumption taxes on goods and services, says the paper.

The paper suggests that there might be a case for taxes on consumables, such as alcohol or tobacco, or luxury goods, such as yachts, in order to benefit health. However, on average, the researchers report that higher taxes on food and services were consistently linked to higher infant mortality, even after correcting for the nation’s poverty rate, Gross Domestic Product, health system spending, and other potentially confounding factors. It stresses that taxes on profits and capital gains could be linked with greater health coverage but without the same risks to infant survival rates observed for countries with higher taxes on staple foods and healthcare.

The paper finds that raising taxes could have particular benefits for countries with low tax bases and weak health systems. It finds that an increase of US$100 tax revenue per year is linked on average with a 6.7 percentage point rise in the proportion of births where a skilled attendant is present and an increase of 11.4 percentage points in the proportion of the population with access to health insurance.

The authors use India as an example of how increasing tax revenues can finance health coverage for all. If India increased tax revenue from 10.4% of GDP to 14.4%, the proportion seen in high-income countries, it would generate additional revenue of US$44.3 per person – enough to finance estimates of universal health coverage.

Professor David Stuckler, from the University of Oxford, said: ‘Our study demonstrates that increasing progressive taxation – which is less harmful to deprived groups – is likely to play a critical role in achieving universal health coverage.’

For more information, contact the University of Oxford News Office on +44(0)1865 280534 or email news.office@admin.ox.ac.uk

Notes for Editors:

  • The paper, ‘Financing universal health coverage – effects of alternative tax structures on public health systems in 89 low-income and middle-income countries’, by Aaron Reeves et al is due to be published in The Lancet
  • The data for the study is drawn from World Bank Indicators, the Institute for Health Metrics and Evaluation, and the Organisation for Economic Co-operation and Development. All models are corrected for country-specific differences that are constant over time and time trends, as well as taking into account GDP increases, purchasing power and inflation per head of population.
  • To estimate these associations the authors used a form of regression modelling that takes into account country-specific differences that are relatively constant across this period, such as healthcare infrastructure. These models measure the association between annual changes in tax revenues with annual changes in the infant mortality rate per 1,000 live births. Because infant mortality rates are declining in almost all of these countries they also take into account the time trend for each country. Finally, they also account for important country-specific differences that might influence both tax revenues and also infant mortality, such as the level of wealth and also the amount spent on health care.