Posts Tagged ‘Canada’

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universal vs means-tested age pensions

Wednesday, April 20th, 2011

University of Calgary economists J.C. Herbert Emery and Jesse Matheson, using historical Canadian data, calculate the value of universal and means-tested age pensions. They find that universal pensions reduced mortality rates of the relevant age groups by around 4 percent. Means-tested benefits of the same size, in contrast, had no significant effect on mortality rates of recipient age groups. Mortality rates are intended to be a measure of well-being.

Canadian public pension plans offer a “quasi-experimental” situation for identifying the effects of income transfers on elderly well-being, and the relative effectiveness of targeted versus universal eligibility for alleviating poverty. The Old Age Pension (OAP), introduced in 1927 for Canadians over age 70, and Old Age Assistance (OAA), implemented in 1952 for Canadians aged 65–69, were means tested programs while Old Age Security (OAS), introduced in 1952 for Canadians over age 70, was a universal plan. The OAP, OAA and OAS were non-contributory programs ….

How the pension programs were implemented allows for the identification of pension effects on elderly well-being. For the OAP, the timing of the program’s introduction varied across provinces after 1927 but all provinces participated with relatively uniform eligibility requirements and nominal benefit values. With the introduction of the universal OAS in 1952 nominal benefit levels were unchanged from the means tested OAP so we can identify the impact of extending pension benefit coverage without a coincident increase in benefit sizes. ….

We find that the means tested pensions did not reduce recipient age group mortality rates, but the universal OAS pension benefits reduced recipient age group mortality rates by around 4 percent. This estimate suggests that the universal pension resulted in roughly 2,100 fewer deaths of Canadians aged 70 and over per year. We estimate that the value of a statistical life (VSL) implied by the OAS induced mortality risk reduction was around $0.5 million (2005 dollars) which is one-tenth of the VSL associated with contemporary government policy interventions. This means that Canadians did not need to place a high value on the life of a senior to justify the higher costs of the universal OAS program.

J.C. Herbert Emery and Jesse Matheson, “Should Income Transfers be Targeted or Universal? Insights from Public Pension Influences on Elderly Mortality in Canada, 1921-1966“, University of Calgary, Department of Economics, Working Paper 2011-02, 24 June 2010.

Canada’s experiment with universal OAS pensions ended in 1989 with the introduction of a ‘clawback’ of benefits – at the rate of 15% – from those with substantial income from other sources.

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Canada’s 2011 federal budget

Thursday, March 24th, 2011

Canada’s minority Conservative government tabled its 2011 budget. None of the other major parties are pleased with it, so a general election is imminent. Researchers at Ottawa’s Caledon Institute, an independent think tank, were not impressed either.

The Budget’s most significant social policy news took the form of an increase to the [poverty-targeted, tightly means-tested] Guaranteed Income Supplement (GIS) [for old-age pensioners]. But the monthly amount of $50 is way too low to make a dent in poverty. The benefit increases should have been higher and been targeted toward single seniors only — i.e., those most in need. Caledon recommends an increase of $1,000 for single GIS recipients, funded by ending pension income splitting [which reduces taxes of wealthy couples].

Budget 2011 failed to deal substantially with the significant weaknesses in Canada’s retirement income system. The federal and provincial/territorial Finance Ministers have agreed to a new voluntary retirement savings plan called Pooled Registered Pension Plans (PRPPs).

The problem is that Canada already has in place a voluntary supplementary system of pensions. They are called Registered Retirement Savings Plans (RRSPs). These vehicles are used mainly by taxpayers in upper-income levels who have the money at hand and enjoy a hefty tax break in return for their contribution. The challenges facing modest- and middle-income Canadians will remain unresolved. In our forthcoming paper Pension Tension, Caledon proposes that the retirement income system be secured through enhancements to the Canada Pension Plan in both its replacement rate and Year’s Maximum Pensionable Earnings. ….

Budget 2011 introduces several new measures in support of caregivers. The most significant is the Family Caregiver Tax Credit that will provide an annual tax reduction of $300 (15 percent of $2,000) for caregivers of all types of infirm dependent relatives including –for the first time– spouses, common-law partners and minor children.

The new Family Caregiver Tax Credit enhances current tax assistance for those now eligible for various measures. Herein lies the problem. The new credit builds on a system that is already inequitable. The announcement in Budget 2011 will end up providing more to those who already receive (albeit modest) assistance. The rich get more tax savings while low- and modest-income households get more of the same: nothing.

From a 23 March Announcement that summarizes the following publication:

Ken Battle, Sherri Torjman and Michael Mendelson, “Policy Agenda in Search of a Budget”, Caledon Institute of Social Policy, March 2011.

HT Warren McGillivray.

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universal health care and the health of the poor

Wednesday, March 2nd, 2011

Universal access to health care does not ensure universal good health. This is the unremarkable conclusion of four Toronto researchers. Their published paper has nonetheless attracted the attention of bloggers opposed to universal health care, who cite the study with titles such as “Socialized Medicine Doesn’t Improve Health of the Poor” and “Health Insurance Doesn’t Necessarily Mean Better Health“.

These bloggers conclude that access to health care has zero effect on the health of the poor, even though the poor use comparatively more health care services. But this does not follow from the study they cite.

The four Toronto researchers conclude that universal health care can reduce – but not eliminate – “historical disparities in outcomes suffered by disadvantaged groups”. This is to be expected, since the health of a disadvantaged person is affected by numerous factors, such as poor nutrition, limited education, and addiction to tobacco, which do not change because of provision of medical care.

Here is the abstract of the Canadian study (emphasis added). I was unable to find an ungated link to the full text.

Lower socioeconomic status is commonly related to worse health. If poor access to health care were the only explanation, universal access to care should eliminate the association. We studied 14,800 patients with access to Canada’s universal health care system who were initially free of cardiac disease, tracking them for at least ten years and seven months. We found that socially disadvantaged patients used health care services more than did their counterparts with higher incomes and education. We also found that service use by people with lower incomes and less education had little impact on their poorer health outcomes, particularly mortality. Countries contemplating national health insurance cannot rely on universal health care to eliminate historical disparities in outcomes suffered by disadvantaged groups. Universal access can only reduce these disparities. Our findings suggest the need to introduce large-scale preventive strategies early in patients’ lives to help change unhealthy behavior.

David A. Alter, Therese Stukel, Alice Chong and David Henry, “Lesson From Canada’s Universal Care: Socially Disadvantaged Patients Use More Health Services, Still Have Poorer Health“, Health Affairs 30:2 (February 2011), pp. 274-283.

Update: One more point, which may not be obvious to everyone. Disadvantaged people consume more health care services because their health is poor. Consumption of health services does not cause poor health (not in our time, at least).

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Daylight Savings Time and currency unions

Sunday, November 7th, 2010

The US changed the date at which Daylight Savings Time would end. After some discussion, because the new US date didn’t work so well for us up North, Canada decided it was more important to stay in synch with the US than to stay in synch with our own dawn and dusk. Canada and the US may not be an optimal currency area, but it’s been decided that we are an optimal time area. No currency union, but we do have a time union. It’s the equivalent of fixed exchange rates. When the US devalues its time, we devalue our time too.

Why does money have real effects? It’s just bits of paper. It’s not real. ….

Metrification was a nominal change that had negiligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects. Some monetary changes, like currency reforms where we knock a couple of zeroes off the old currency and call it the new currency, are like metrification, where nothing real changes. And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run.

If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better.

Nick Rowe, “Daylight Savings Time and the non-neutrality of money”, Worthwhile Canadian Initiative, 6 November 2010.

Who knows, we might even learn something about the functioning of currency unions (such as the eurozone)! Like all of Nick’s posts, this one is long, at times a bit technical, but very original and very rewarding.

HT: Marginal Revolution

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immigration yesterday and today

Sunday, July 18th, 2010

Today, we are all either immigrants or the descendants of immigrants. This is especially true of countries like … Canada ….

There is no shortage of examples past and present that reflect the multi-ethnic make-up of the country. Most commentators seem to think that Canada has done a reasonable job of addressing these fault lines through compromise and negotiation. Individuals have contributed through common schooling and intermarriage so that second and third generation Canadians and their families are less tied to their roots.

One difference [with migration] today than say 20 years ago is that immigrants can come to Canada and more readily retain ties to their homelands. Transportation and communication costs have fallen making linkages easier to maintain. Allowance for dual citizenship has weakened the ties to any one country so that immigrants are invited to make their home in Canada but support a second home and ties abroad. Hong Kong Chinese came to Canada before the colony was returned to China in 1997, bought homes here, left their children to attend Canadian schools while the parents returned to carry on their businesses in Hong Kong.

Christopher Maule, “Migration – Then and Now”, 18 July 2010.

This is an interesting post, but I question whether migration has been affected significantly by a fall in transportation and communication costs over the past 20 years. Over the past 60 years, possibly. But surely not since 1990. Perhaps this is a typo. Or, the special case of Hong Kong – where migration was driven by much more than costs of travel and communication – may have been on Professor Maule’s  mind.

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Guantanamo Bay as a Charter City?

Monday, July 12th, 2010

Journalist Sebastian Mallaby has written a lengthy profile of economist Paul Romer, focusing on Romer’s obsessive promotion of “Charter Cities”. Paul Romer has solid academic credentials. He ‘invented’ endogenous growth theory in the late 1980s after earning a BS in physics (1977) and a PhD in economics (1983), both from the University of Chicago. These portions of Mallaby’s article caught my eye.

Romer is not just arguing for enclaves; he is arguing for enclaves that are run by foreign governments. To Romer, the fact that Hong Kong was a colonial experiment, imposed upon a humiliated China by means of a treaty signed aboard a British warship, is not just an embarrassing detail. On the contrary, British rule was central to the city’s success in persuading capitalists of all stripes to flock to it. Romer sometimes illustrates this point by citing another Communist country: modern-day Cuba. Cuba’s rulers have tried to induce foreign corporations to set up shop in special export zones, and have been greeted with understandable caution. But if Raúl Castro convinced a foreign government—ideally a rich democracy such as Canada—to assume sovereignty over a start-up city in Cuba, the prospect of a mini Canada in the sun might attract a flood of investment.

It must have occurred to Castro, Romer says, that his island could do with its own version of Hong Kong; and perhaps that the Guantánamo Bay zone, over which Cuba has already ceded sovereignty to the United States, would be a good place to build one. “Castro goes to the prime minister of Canada and says, ‘Look, the Yankees have a terrible PR problem. They want to get out. Why don’t you, Canada, take over? Run a special administrative zone. Allow a new city to be built up there,’” Romer muses, channeling a statesmanlike version of Raúl Castro that Cuba-watchers might not recognize. “Some of my citizens will move into that city,” Romer-as-Castro continues. “Others will hold back. But this will be the gateway that will connect the modern economy and the modern world to my country.” ….

Throughout our conversations, Romer maintained a steady confidence that poor countries will eventually welcome charter cities. ….

But the largest obstacle Romer faces, by his own admission, still remains: he has to find countries willing to play the role of Britain in Hong Kong. …. How would a rich government contend with the shantytowns that might spring up around the borders of a charter city? Would it deport the inhabitants, and be accused of human-rights abuses? Or tolerate them and allow its oasis to be overrun with people who don’t respect its city charter? And what would the foreign trustee do if its host tried to nullify the lease? Would it defend its development experiment with an expeditionary army, as Margaret Thatcher defended the Falklands? A top official at one of Europe’s aid agencies told me, “Since we are responsible for our remaining overseas territories, I can tell you there is much grief in running these things. I would be surprised if Romer gets any takers.”

Sebastian Mallaby, “The Politically Incorrect Guide to Ending Poverty”, The Atlantic, July/August 2010.

For more on Charter Cities, visit http://www.chartercities.org.

HT David Warsh.

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government finance of R&D

Sunday, June 6th, 2010

Carleton University economist Christopher Maule has launched a new blog. This concise paragraph – a mini-essay, embedded in one of his recent posts – caught my attention. Professor Maule argues convincingly that government bureaucrats are conservative by nature, so are not apt to channel funds into risky ventures that pay handsome returns only if they succeed. As Chris says, “reporting annually that 95% of approved expenditures failed is not something a bureaucrat would relish doing”, even if high returns from the 5% of expenditures that succeed more than compensate the losses from failures.

Research is an activity similar to exploring unknown lands. You know generally where you want to go. You don’t quite know what you are looking for and certainly not what you will find and how long it will take and cost, but you are motivated by knowing that you might make a discovery that will be valuable to yourself , your country and perhaps even humanity – in that order. Research is an ill-defined process and the most valuable results occur more by chance than good planning. There are opportunities for private and social gain and many chances to misappropriate funds because research is difficult to monitor. Over time many vested interests arise who engage in rent seeking behavior. This does not appear to be the sort of thing that bureaucrats should be involved in given their training to monitor the prudent use of public funds with the Auditor General, Parliament, the press and lobbyists looking over their shoulders. And yet federal and provincial governments organize processes both to undertake R and D, for example NRC (the National Film Board in the cultural arena), and to fund private sector R and D through grants, subsidies and tax incentives. Administering these policies requires public servants to act more like venture capitalists by administering the use of public funds in activities where there is a less than 5% chance of success. Their training in managing the prudent use of public funds does not promote such actions. Reporting annually that 95% of approved expenditures failed is not something a bureaucrat would relish doing, especially year after year.

Christopher Maule, “Reinventing CIDA – Some thoughts”, 15 May 2010.

Comments by Christopher Maule on a presentation by economist Barry Carin and political scientist Gordon Smith, both from the University of Victoria, of their 66-page report Reinventing CIDA (Canadian Defence & Foreign Affairs Institute, Calgary, May 2010).

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private finance of health care

Sunday, May 30th, 2010

A new report from the Toronto-Dominion Bank calls for radical reforms to curb the explosive growth of expenditure on health care, but rejects the notion of forcing residents of Ontario (Canada) to pay privately for a larger portion of the health services they consume.

[T]here is just one major reform prospect that is glaring by its omission [from our 10 proposals to restrain the growth of health care costs]. That is much more extensive use of private financing in health care, either on a general basis or as more of a side door entry, through delisting of fairly common treatments. This is not to be confused with use of private sector resources to deliver health care. We do call for that in the name of efficiency. ….

For sure more private financing and delistings would save money for the public purse. But if all they did was shift the cost from the public sector to the private sector then nothing would be accomplished. And they could have negative side effects. There are several reasons why we have not recommended this bolder course.

First, there is little compelling evidence internationally that private financing saves total costs as opposed to just divesting them from the public sector. Second, there are risks to quality if health care providers shift resources away from the public portion of the system toward the potentially more lucrative private parts. Third, there is so much public and political resistance to private financing that the controversy could throw off track any potential for other changes that would improve the efficiency of the system. ….

Toronto-Dominion Bank, “Charting a Path to Sustainable Health Care in Ontario”, TD Economics Special Reports, 27 May 2010, p. 7.

This superb 34-page document ought to be required reading for anyone who worries about the fiscal implications of rising health care costs. Residents of provinces other than Ontario – indeed, residents of countries other than Canada – should read it, since rising health care costs are a problem everywhere.

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compensation of medical doctors

Friday, May 28th, 2010

The government of Ontario (Canada), in an effort to curb expenditure on healthcare, plans to put more of the province’s doctors on salary.

The majority of Ontario’s approximately 24,000 doctors are paid on a fee-for-service basis, meaning they bill the provincial health plan for each service they provide to a patient. But in recent years, some hospitals, particularly those in smaller, rural communities, have switched to a salary system for doctors in their emergency departments. As well, the 1,900 doctors who work in clinics as part of family health teams … are also paid a salary.

[Health Minister Deb] Matthews said she would like to see that compensation model expanded to include more doctors. She was responding to a report released this week by Toronto-Dominion Bank, which made eight proposals to wring more efficiencies out of the health-care system, including moving doctors away from the fee-for-service compensation model.

In a system where doctors are paid for each service, the report says, there is no incentive for them to measure the cost-effectiveness of their treatment decisions against the potential benefits.

Karen Howlett, “Ontario aims to put more physicians on salary”, The Globe and Mail (Toronto), 28 May 2010.

The TD Economics Report cited by Howlett was released yesterday (27 May), and can be downloaded here.

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Martin Wolf on financial reform

Thursday, April 29th, 2010

As promised, Martin Wolf this week looks at fundamental changes that might make the financial system more stable by reducing “the risk taken on by the gamblers working legally inside the machine”. He begins by looking at Canada.

An obvious solution is to revert to a tightly regulated, oligopolistic banking system. This is the sort of system Canada has enjoyed. But it is stodgy. It is also inconsistent with globalisation. Access by residents to foreign finance and by domestic institutions to foreign risks makes such cartels inherently unstable.

Martin Wolf, “Why cautious reform is the risky option”, Financial Times, 28 April 2010.

Martin then lists numerous ways to improve the system. The proposals are sensible, but far from radical – for example “impose much higher capital and collateral requirements against trading in derivatives”. Martin himself admits “None of this deals fully with the huge issue of securing greater macroeconomic stability: but a less unstable financial system would surely help.” Perhaps this is the most we can expect from financial reform. But the ‘stodgy’ Canadian system is beginning to look more and more attractive to me. Less excitement is not necessarily bad.

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