Tuesday, May 13, 2008

The fitness tax credit

Healthy people are good for an economy: they are productive, happy and in particular do not generate (poor) health related costs. As long as all those characteristics are private, there is no need for the government to intervene and promote good health. Everybody is free to choose the lifestyle she prefers, and suffer the consequences.

If there are externalities, it is another story. Second-hand smoke, drunk driving, are all example of lifestyle choices that have a negative impact on others. But health itself also has an impact if health care costs are at least partly carried by the community. This is the case in socialized health care, like in the United Kingdom and Canada, in mandatory group health insurance like in Germany, or in state supported old age health care like in the United States. There are two ways to address this: tax bad behavior, or subsidize good behavior.

Thus the plethora of sin taxes. Among existing ones, let us mention cigarettes and alcohol. But other possibilities could be trans-fat, French fries, corn syrup and sodas. One can also encourage good behavior: some health insurance companies offer lower rates for non-smokers or subsidize various sports activities. Canada introduced last year a tax credit for up to C$500 towards a child's sport activities. There is now a proposal on the table to create a similar tax credit for adults, up to C$1,500.

Telling people to exercise and eat well is only going so far if they are bombarded with temptations. But making them see the consequences in their budget, and early rather than later when they get sick, is bound to have more impact.

4 comments:

Gabriel said...

Yes, yes, because that's the reason why we have sin taxes. Now, naivety about the mechanisms and nature of politics... that's a real sin I'd like to see taxed!

When government is imperfect (always), the success of any policy prescription becomes contingent on very particular political circumstances.

T-Bone said...

There's a lot of bikers who protest helmet laws. I wonder if it'd be possible to let them have a license to ride without a helmet for a fee.

Though just allowing some people to ride without a helmet makes enforcement difficult unless maybe there's something visible on the bike to indicate the permit, perhaps like a car's registration sticker.

You'd need to look at statistics to figure out an accurate fee for the privilege. But I wonder how many motorcycle accidents where a helmet would have made a difference would actually just prevent injury rather than prevent death? I understand the costs associated with a head injury. But what are the costs of a death? Would the high rate of death actually mean helmets don't save us a lot of cash, they just save a lot of lives?

Ken Houghton said...

The use of helmets by motorcyclists had a negative externality on neurological research.

I think I can live with that.

One of the things that would help as an interim step on the fats level is if the information were actually made available. (Yes, I live for the moment in a suburb of NYC, where the mayor's office is pushing for that.)

We all know about Super Size Me in general, but the problem there is not the Big Macs—as noted, it's the fries and, especially, the sodas.

List calorie counts on the items. Otherwise, you have a case of "regulation without information"—that is, you're punishing me for doing something bad for my health, without giving me sufficient information to know that the meal I just bought is 950 Kcals.

I'm all for taxing bad behavior—but only if people have enough information to know it's bad behavior.

Economic Logician said...

I am fine with bikers riding without helmets, although I find this stupid, as long as they are the only ones facing the consequences of their decisions. If they are participating in the same insurance pool as me, either privately or in a socialiyed health care system, I want to make sure the consequences of their decisions are internalized: they pay for the additional health costs, or if it means they are more likely to die, have them get a discount!