We need more lotteries in Norwegian politics

The Ministry of Finance this week sent out proposals about allowing a random sample of young people between the ages of 20 and 35 to get lower taxes to find out how it affects employment.

The criticism from the opposition is disappointing: Sylvi Listhaug (Frp) “thought it was April 1st” and Ane Breivik (V) calling it a “completely absurd lottery scheme”. Erna Solberg (H) believed that “now there must be enough nonsense”, claiming that “if Ap had not put our proposal of that time in the drawer, we would now know if it worked”.

In managerial place accused The Evening Post ministry to create a “tax lottery”. That these are the reactions to a proposal for a research-based policy in 2025 is disappointing. The critics reveal a lack of understanding of knowledge-based politics.

Better policy with better knowledge

For politicians and civil servants to make good decisions, they need knowledge of what works. Many people think that tax relief obviously increases labor supply, but it's not that simple.

When recommending vaccines and medicines to the population, this is based on what we call in research a “gold standard” for evaluating whether something works: a randomized trial in which someone gets the “treatment” and someone in a control group receives a placebo. Here it is precisely the random draw that ensures that the groups are basically equal. This approach is the basis of our confidence in uncontroversial measures, such as vaccinating children.

The logic also applies to public policy. It is difficult to determine whether a policy measure works at a given time, since very many other things also change during the same period.

To elicit precise information about the impact of policy measures, it is best to follow the gold standard of evaluation in science: We leave the measure applicable to a randomly selected group and compare the result for this group with a group not affected by the measure.

It is therefore misleading when Solberg claims that we could know whether a tax credit for young people works, “if Labour hadn't put [the Conservative Party's] proposal from 2021 in the drawer.” Since then, the Norwegian economy has undergone major changes, including a pandemic. Without a control group, it would have been impossible to know whether changes in young people's occupational participation were due to the deduction -- or entirely different circumstances.

Nor is it enough just to know whether labor supply increases when taxes go down. We also need to know how big the effects are compared to the alternatives. What if the effect of tax credits is small, and other measures to increase occupational participation have much greater effect for the same amount?

The opposition should be far more concerned with randomising more measures and thus building a better comparison basis for understanding the effects of tax compared to other ways of spending the money. Such a knowledge base could save the Community considerable sums that today go to ineffective measures.

Instead, the opposition chooses an ignorant autopilot critique that only emphasizes the persistent obstacle to knowledge-based policy: Politicians pick the outcomes that support the policies they want anyway, ignore the rebuttals, and refuse to invest in knowledge that can prove them wrong.

Key dilemmas

The critics rightly raise an important dilemma related to perceived injustice. We generally can't justify some groups getting less tax than others.

Nevertheless, we believe exceptions to this rule should be made when the measure is temporary and necessary to ensure sufficient knowledge to know whether measures are working as intended.

There is a danger that people will react negatively to the differential treatment. But it's important to stress that no one is favored: Everyone has an equal chance of getting the tax break. No one will be worse off from the measure. If the tax deduction has the desired effect on the job offer, it can be rolled out to the whole group.

If experiments became a normal part of policy making, something several selection have pointed out the importance off, the differences would even out as well. Sometimes you come out better, sometimes you don't. And with knowledge the experiments provide, we can all expect to profit from this over time because we can make better policy decisions.

There is little evidence that people are opposed to randomized trials. Research shows that such measures receive support when the purpose is clearly explained. Testing policies systematically is far less arbitrary than rolling out measures we don't know about works.

Experiments, therefore, are neither April Fools, nor absurd, nor nonsense: It is perhaps the most important source of knowledge-based policy.