Welcome to Plugging the Gap (my email newsletter about Covid-19 and its economics). In case you don’t know me, I’m an economist and professor at the University of Toronto. I have written lots of books including, most recently, on Covid-19. You can follow me on Twitter (@joshgans) or subscribe to this email newsletter here. (I am also part of the CDL Rapid Screening Consortium. The views expressed here are my own and should not be taken as representing organisations I work for.)
A few weeks ago, Quebec Premier François Legault claimed to be contemplating placing a significant financial penalty on the unvaccinated. It is not hard to imagine that such a thing would be controversial but, for economists, it’s a straightforward application of basic economic logic: if the private benefits and costs of individuals do not take into account their potential consequences for others, the least invasive way of improving overall welfare is to put in place taxes or subsidies so that individual choices reflect their social consequences. Such, so-called Pigouvian interventions, are a mainstay of best policies to combat climate change (e.g., carbon prices) or improve scientific invention. So to economists, Legault’s proposition was hardly controversial but, in fact, was a way of respecting individual choices to be vaccinated without imposing blanket requirements such as mandates or vaccine passports.
For this reason, I recently got together with my Toronto colleague, Mike Smart (a taxation economist), to explore what such a tax might look like right at the moment. Unlike pollution, the externality arising in pandemics changes over the course of a pandemic. If everyone but you was immune to a virus, you choosing whether to be vaccinated or not has no real external consequence. If everyone is potentially at risk, the externalities are much higher. In fact, the externality varies with the reproduction number for the virus, called R, which itself depends most critically on how many people are vulnerable to infection and serious illness. The more people who are vaccinated, the lower the harm. As a recent paper from Matthew Goodkin-Gold, Michael Kremer, Christopher M. Snyder & Heidi L. Williams shows, if you were to incentivise people to be vaccinated, the level of the incentive will change over the course of the pandemic. Indeed, a successful outcome would obviate the need for the incentive entirely.
Another factor, of course, is how well the vaccine does in ensuring people do not spread the virus to others. The externality is highest when the vaccine is at its most effective as this diagram shows:
But it also interacts with how many people are vaccinated. Thus, putting a number in these situations is not straightforward.
Taking these forces into account, what we do is calculate what the current level of a tax on unvaccinated adults in Canada might be. The details are in this post at Finances of the Nation. We come to the broad conclusion that, this year, you would want to tax each Canadian adult who does not have three doses of the vaccine, $1,500. This amount is the expected health cost imposed on others if an individual chooses not to be fully vaccinated. Most of those costs are, in fact, imposed on other unvaccinated individuals but that does not make that cost any less. Depending on assumptions regarding vaccine efficacy and the infectiousness of Covid-19 variants, this tax may lie between $500 and $3000.
We have no idea whether this tax would encourage more vaccination or not. The point of having a tax like this is that we don’t have to care. Set the tax at the right rate and those imposing the costs are paying for the costs. That leaves people free to remain unvaccinated if they choose to do so.
Our paper provides more details and answers to questions such as fairness. On that last point, we note that the amount here is no less than taxes on other public health measures such as smoking although what we have is not a sin tax (taxing people to make explicit harm to themselves) but a social tax (taxing people to internalise their harm on others).