I used to be part of a major campaign (20+ years in the making, dozens of regular players, 8-12h play/week...). That campaign applied a death penalty; die and your next character came back weaker. During my play I saw at least half dozen spectacular death spirals, as these new weaker characters of course tended to die much easier, and then the player got an even weaker character, which died even easier, and so on...
Death spirals are an interesting topic. "Die and you come back -1 level" on the face of it seems much more generous than the old school "everyone starts at 1st level", but recently I have been doing the old school way (with Labyrinth Lord and Pathfinder Beginner Box) and the results are fascinating: With all PCs starting at 1st, there is no vicious spiral effect. Instead, the GM is forced to accommodate the reality that most people are 1st level, and create an environment to match - an environment tailored to survival at 1st level.
Instead of the on-level grind of CR matched encounters & death spiral if you die, you instead get a virtuous circle effect - 1st level is survivable, with luck, but the more levels you get, the better your survival chances. Although if you are 4th level and adventuring with 1st level newbies, you probably won't die but you won't level fast, either. If a group of PCs reach 4th level together, they can then seek out tougher challenges.
Obviously this does not allow for Adventure Paths, but for sandbox play IME 'start at 1st level' works brilliantly:
It gives a real sense of achievement on reaching higher levels.
It makes it very easy for new players and PCs to join the game.
It allows for a much more plausible, alive-feeling world.
There is no Death Spiral. There is only the Circle of Achievement.
