a sample of workers, we divide incomes by the ratio of workers to total population.<sup>21</sup> Then we apply income and consumption taxes to our sample according to 2012-13 tax rules. For income taxes, we apply the official income tax brackets; however, our calculations imply that 9% of the total population of India have incomes above the income tax threshold, but in December 2012 the Finance Minister of India stated that 2.89% of the population paid income taxes. Therefore, for a conservative estimate of fiscal implications, we use the Finance Minister’s figure: we assume that tax payment is random with respect to income, and when we shift IMR or sanitation, we charge each individual in our sample with an increase in tax payments that is around 30% of their increase in official tax liabilities. Then, for consumption taxes, we use the 12% CENVAT tax and apply a tax at rate<sup><u>0</u></sup> 1<sup>_<u>.</u>_</sup> _._<sup><u>12</u></sup> 12<sup>onafter-taxwages.22</sup> The results are as follows. First of all, a 1% point reduction in IMR increases yearly tax revenues by $59.28 million per treated year-of-birth cohort, incorporating $12.66 million of income taxes and $46.62 million of VAT; adding up over 157 years and discounting produces a present-value total of $15.94 billion, or nearly a 50% increase from the baseline analysis.

When we consider the elimination of open defecation, the analysis becomes a bit more complicated, because the open defecation rate for our sample is well above 53.1%. Therefore, we assume that “eliminating open defecation” means reducing open defecation by 53.1% points on average (some districts are already relatively close to zero open defecation, so their rate will drop less). The resulting per-year increase in tax revenues for the first treated cohort is $629.64 million, incorporating $144.59 million of income taxes and $485.05 million of VAT. Then, assuming that gains from “eliminating open defecation” decline linearly over time as in the baseline analysis, we find that the total present-value increase in tax revenues is $103.49 billion, or $790 per household that stops defecating in the open.

Therefore, our quantile estimates lead us to the conclusion that our estimates of the fiscal gains from improved sanitation and early-life disease environment are robust and, if anything, possibly underestimates.

# **C.2 Welfare Impacts Using Quantile Regressions and Consumption Estimates**

Our welfare analysis in section 4.2 relies on linear regressions of wages on IMR and sanitation; in this appendix we present alternative results using consumption regressions and quantile regressions. First of all, for the impact of IMR, we can use the consumption regressions in section 3.6. We start with average per capita consumption, which was 1430 and 2630 INR per month in rural and urban areas in the 2011 NSS; since 68.84% of India is rural, this implies average consumption of 1803.92 INR per month, or $458.41 per year. Each 1% point decrease in infant mortality raises average consumption by 1.73% for everyone in a household with an affected main earner, or $7.93 per person per year. Next, we take the average life expectancy of 66 years, and find that $7.93 per year is equivalent to $190.49 per person in present-value terms. With a population of 1.21 billion according to the 2011 Census, this means a welfare increase of $3.49 billion per year-of-birth cohort, and at an economy-wide level, it is equivalent to a helicopter drop of $92.94 billion right now, considerably larger than the $37.27 billion from the baseline analysis.

> 21According to the 2011 Census, this is 1210569573481743311<sup>;this makes the mean income in our sample equal to the</sup> mean income in the actual population of income-earners.

> 22Some consumption items are taxed at higher or lower rates, but in the absence of detailed information on their rates and share in consumption, we assume a flat rate on all consumption.

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