UK recovery: stronger than Italy, weaker than US & Canada. http://t.co/C0TEsbzMm3—
Jonathan Portes (@jdportes) April 28, 2015
Recoveries from recessions across the G-7
28 Apr 2015 Leave a comment
in business cycles, economic growth, Euro crisis, global financial crisis (GFC), great recession, macroeconomics, politics - USA Tags: British economy, Canada, Eurosclerosis, France, Germany, Italy, Japan, recoveries from recessions
The role of new taxes in the Great Recession
24 Apr 2015 Leave a comment
in economic growth, fiscal policy, great recession, labour economics, labour supply, macroeconomics, politics - USA Tags: great recession, obama, Obamacare, taxation and entrepreneurship, taxation and investment, taxation and labour supply
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The social cost of high company tax rates is just too high
22 Apr 2015 Leave a comment
in economic growth, fiscal policy, human capital, income redistribution, labour economics, macroeconomics, Public Choice Tags: company tax rate, entrepreneurial alertness, tax reform
Levels of output are nowhere near returning to pre-crisis trends
21 Apr 2015 Leave a comment
in business cycles, economic growth, Euro crisis, global financial crisis (GFC), great recession, macroeconomics Tags: Eurosclerosis
50% more R&D since the 60s, but still no growth dividend?
18 Apr 2015 1 Comment
in applied price theory, economic growth, economics of education, entrepreneurship, history of economic thought, human capital, industrial organisation, macroeconomics, occupational choice, survivor principle Tags: Ben Jones, Chad Jones, creative destruction, endogenous growth theory, innovation, R&D
Spending on intellectual property products has risen in the USA from 1% in 1950 to 5% now. Public R&D spending in the USA has been pretty static for 60 years. Intellectual property products in the chart below includes traditional research and development, spending on computer software, and spending on entertainment such as movies, TV shows, books, and music. Spending on software and entertainment was only recently measured in the US national accounts. This inclusion of intangible capital investments will radically change the story of economic growth and the business cycle in the 20th century.
Source: Chad Jones (2015).
The growth rate in the USA hasn’t changed much despite this massive increase in intellectual property property product production. Is innovation getting harder? R&D is supposed to boost the growth rate, if you are to believe politicians bearing subsidies for it wherever they find it.
Source: Chad Jones (2015).
Ben Jones in The Burden of Knowledge and the Death of the Renaissance Man: Is Innovation Getting Harder? found that as knowledge accumulates as technology advances, successive generations of innovators may face an increasing educational burden. Innovators can compensate through lengthening their time in education and narrowing expertise, but these responses come at the cost of reducing individual innovative capacities. This has implications for the organization of innovative activity – a greater reliance on teamwork – and has negative implications for economic growth.
This longer period of education and initial study is not compensated by inventors innovating for longer spans of their lifestyle. This rising burden of knowledge is cutting into their best years of their lives. Jones found a broad and dramatic declines in early life-cycle productivity among great minds and ordinary inventors, and a close relationship of these trends with increased training duration.
Jones found that the age at first invention, specialisation, and teamwork increased over time in a large micro-data set of inventors. Upward trends in academic collaboration and lengthening doctorates can also be explained in his framework of innovation getting harder because of a rising burden of knowledge. Co-authorship in academic literature has increased, including physics, biology, chemistry, mathematics, psychology, and economics. This measure of teamwork has increased 17% per decade.
Using data on Nobel Prize winners, Jones found that the mean age at which the innovations are produced to win the Prize has increased by 6 years over the 20th Century.
- Before 1901, two-thirds of the Nobel laureates did their prize-winning work before the age of 40 and 20 per cent did it before age of 30.
- By 2000, however, great achievements seldom occurred before the age of 40.
It’s now taking longer for scientists to get their basic training and start their careers. There is simply more to learn because knowledge in all fields has grown by quantum leaps in the past century. Nobels are being handed out for different types of work than a century ago.
- There has been a trend away from awarding prizes for abstract, theoretical ideas.
- Now more honours are being bestowed on people who have made discoveries through painstaking lab work and experimentation – which takes a lot of time to do.
Jones’ theory provides an explanation for why productivity growth rates did not accelerate through the 20th century despite an enormous expansion in collective research effort and levels of education and many more graduates. Innovation is getting harder?
Average tax rates on consumption, investment, labour and capital in USA, UK and Canada, 1950-2013
17 Apr 2015 5 Comments
in business cycles, economic growth, economic history, fiscal policy, global financial crisis (GFC), great recession, macroeconomics, politics - USA, public economics Tags: British economy, Canada, sick man of Europe, tax incidence, tax reform
Income taxes in the USA and UK didn’t change all that much after the mid-70s. Prior to that, income tax rose quite steadily in the UK in the 1950s and 1960s and not surprisingly, Britain was the sick man of Europe in the 1970s. Income taxes rose quite steadily in Canada for most of the post-war period up until 1990 and then levelled out for most of that decade before a small tapered downwards.
Source: Cara McDaniel.
Taxes on consumption expenditure were very different stories across the Atlantic. There has been a tapering down in the average tax rate on American consumption expenditure since 1970 after modest increases before that. Canadian taxes on consumption expenditure rose steadily until the 1970s, then drop steadily in the 1970s and than rose in the 1980s and dropped again after 1992. British taxes on consumption expenditure rose sharply in the late 1960s, dropped sharply and then rose again in the 1970s and was pretty steady after that.
The sleeper tax in all three countries was payroll taxes to fund social security and the welfare state. These rose steadily in the USA, UK and Canada up until the 1990s.
Source: Cara McDaniel.
Despite all that nonsense about neoliberalism from the Left over Left, the average rate of tax on capital income did not appear to change much at all over the last 50 years. There was a modest taper in US capital income taxation from the mid-30s to the mid-20s over the entire post-war period. The average Canadian tax rate on income from capital rose steadily in the 60s, fell steadily in the 70s before rising again in the mid-1980s and fell again after 2000. The average British tax rate on capital income rose steadily in the 60s and 70s, coinciding with the emergence of Britain as a sick man of Europe, and then stabilised in the the 1980s onwards but with a dip in the late 80s before a rise in the early 1990s.. Despite the large cuts in the statutory corporate tax rate in the UK, there was only a mild taper in the average tax rate on capital income in the UK.
Source: Cara McDaniel.
The average tax rate on investment expenditures is pretty stable in the USA for the entire post-war period. The only significant increase in the average tax rate on investment expenditures in the UK coincided with the emergence of the sick man in Europe after a drop in the early 70s. The average tax rate on investment expenditures do not change at all in the UK after the 1970s. The Canadian average tax rate on investment expenditures is higher than elsewhere. It rose steadily in the 50s and 60s, dropped in the 70s and rose again in the 80s before tapering from 1992 onwards.
Source: Cara McDaniel.
These higher on rising taxes and the UK and Canada did nothing for either country in catching up with the USA. The figure 1 below shows real GDP per working age per American, Canadian and British.
Figure 1: Real GDP per Canadian, British and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, 1950-2013
Source: Computed from OECD StatExtract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics
The USA is pulling away from Canada and the UK in GDP per working age person. The exception is British economy from about 1990 onwards which caught up with Canada.
Figure 2, which is detrended GDP data, illustrates the British economic boom in the 1990s. Each country’s annual economic growth rate is detrended by 1.9%, the detrending value currently used by Ed Prescott. A flat line is growth at 1.9%, a rising line is above trend growth, a falling line is below trend growth.
Figure 2: Real GDP per Canadian, British and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, detrended 1.9%, 1950-2013
Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics
Figure 2 shows that Canada has been in a long-term decline since the mid-1980s with much of this decline coinciding with periods of rising taxes on income from labour.
The British economy boomed in the 1990s, after the tax hikes of the 1970s and early 80s were reversed. This growth dividend was squandered by the Blair government in the 2000.
Figure 2 also shows that US growth was rather stable with some ups and downs up until 2007, expect during the productivity slowdown in the 1970s. The first major departure from trend growth of 1.9% was with the onset of the great recession.
Average tax rates on consumption, investment, labour and capital in Australia and New Zealand, 1959-2011–updated
16 Apr 2015 1 Comment
in economic growth, fiscal policy, macroeconomics, politics - Australia, politics - New Zealand, public economics Tags: GST, lost decades, taxation and the labour supply, taxation of capital
Cara McDaniel went to the mammoth task of constructing average tax rates for 15 OECD countries over the period 1950-2003 for consumption, investment, labour and capital:
Total tax revenue is divided into revenue generated from four different sources: consumption expenditures, investment expenditures, labour income and capital income.
To find the average tax rate, tax revenue from each source is then divided by the appropriate income or expenditure base.
She used that data to examine the role of taxes and productivity growth as forces influencing market hours. She used a calibrated growth model extended to include home production and subsistence consumption, both of which were key features influencing market hours. Her model was simulated for 15 OECD countries. She found the primary force driving changes in market hours is found to be changing labour income tax rates and productivity catch-up relative to the United States is found to be an important secondary force.
I thought I would summarise the tax rate data computed by Cara McDaniel for Australia and New Zealand.
Source: Cara McDaniel.
McDaniel’s data on average tax rates on household incomes in Australia and New Zealand suggests that the average tax rate New Zealand household incomes fell by a third since 1986. No estimates were calculated for earlier years for New Zealand.
As for Australia, taxes steadily increased between 1959 and 1987 stabilised until 2005 and then fell a bit.
Source: Cara McDaniel.
There is a big spike in the average tax rate on consumption expenditure in New Zealand in 1986 when a GST replaced the pre-existing sales taxes. The average tax rate on New Zealand consumption expenditures and tapered away until the end of2009 and started to increase again.
Not much happened in Australia regarding the average tax rate in consumption expenditures since about 1983 despite the introduction of a GST in 1998.
Source: Cara McDaniel.
The average tax rate in capital income in Australia is much higher than in New Zealand. On the other hand, the average tax rate on investment expenditure is much higher New Zealand as compared to Australia.
Source : Cara McDaniel.
Taxes on investment expenditures increased quite significantly at the same time that a GST was introduced in New Zealand.
All in all, New Zealand cut taxes on personal income but that tax cut seemed to be pretty much offset by higher taxes on personal consumption through the introduction of a 10% and then 12.5% GST.
The most interesting finding in this database is the sharp increase in the average tax on investment expenditures in the mid-1980s. This prolonged New Zealand’s lost decades – the two decades of next to no GDP growth per working age New Zealander.
Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1956-2013
Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014.
New Zealand’s lost decades ended when the average tax rate on investment expenditures started to fall.
Relative productivity across the major economies
16 Apr 2015 Leave a comment
in economic growth, labour supply, macroeconomics Tags: Eurosclerosis, Japan, Lost Decade
Annual hours worked, USA, West Germany, Germany and France, 1950-2013
15 Apr 2015 Leave a comment
in economic growth, Euro crisis, fiscal policy, labour economics, labour supply, macroeconomics, politics - USA Tags: annual hours worked, Eurosclerosis, taxation and the labour supply, welfare state
The French and Germans work much less than the Americans
(via: bit.ly/1b2DfWo) http://t.co/S8XwIeLNBr—
Max Roser (@MaxCRoser) April 15, 2015
Max Roser tweeted this chart today showing that French and Germans work far fewer hours than Americans. His measure is annual hours worked divided by the number of persons engaged. Max Roser’s starter shows that French and German annual hours worked in a steady decline since 1950.
My measure below is annual hours worked per American, French, West Germany and German aged 15 to 64. My data shows a different picture. There are stable hours worked per working age American. European hours per worked per working age European fell rapidly up until 1986 or so and then stabilised. Each set of data, my data and Max Roser’s data, requires its own explanation. My explanation is the sharp rises in taxes Europe in the 1970s and 80s.
Source:OECD StatExtract and The Conference Board Total Economy Database, January 2014.
Each set of data, my data and Max Roser’s data, requires its own explanation. My explanation is the sharp rises in taxes net welfare state transfers in Europe in the 1970s and 80s.
Source: caramcdaniel.com
As an illustration, average tax rates on American labour incomes doubled between 1950 in 1980 and then was stable. Labour supply started recover after this point in time as well.
Average tax rates on French and German labour income more than doubled between 1950 to about 1990 and then stopped rising by much after that. At the same time, the fall in hours worked per working age German and French stopped. The average tax rate by that time in Europe was twice that of the USA.
Robert Lucas on the irrelevance of income redistribution to the Great Enrichment
15 Apr 2015 Leave a comment
Real GDP per Canadian and American aged 15-64, 2013 price level, updated 2005 EKS PPP, detrended, 1970-2013
15 Apr 2015 Leave a comment
in economic growth, economic history, macroeconomics, politics - USA Tags: Canada, living standards
Figure 1: Real GDP per Canadian and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, detrended 1.9%, 1970-2013, base 1970
Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics
A flat line means growth at the trend rate of 1.9%; a falling line means below trend rate of growth ; a rise in line means above trend rate of growth. Canada appears to have mostly been falling behind the USA.
Figure 2: Real GDP per Canadian and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, 1950-2013
Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics.
Real GDP per Japanese and American aged 15-64, 2013 price level, updated 2005 EKS PPP, detrended, 1970-2013
13 Apr 2015 Leave a comment
in development economics, economic growth, global financial crisis (GFC), great recession, growth miracles, macroeconomics Tags: GFC, great recession, Japan, Lost Decade
Source: Computed from OECD StatExtract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics.
Note: When the line is flat, the economy is growing at its trend growth rate. A falling line means below trend growth; a rising line means of above trend growth. Detrended with values used by Edward Prescott.
The Japanese decline after 1992 are the Lost Decades. Japan recently returned to its 3.2% trend growth rate of the 1970s and 1980s for working age Japanese.
It could be argued that Japan is now on a permanently lower growth rate that implies no further catch up with the USA.
How can New Zealand blamed distance for its woes when international technology diffusion is speeding up
09 Apr 2015 Leave a comment
in development economics, economic growth, growth disasters, growth miracles, macroeconomics, politics - New Zealand Tags: borderless world, catch up, geography, international technology diffusion, lost decades, tyranny of distance
It took 100yrs for steamship technology to spread from rich to poor nations. Today tech diffuses almost instantly http://t.co/Jz3gVk8bqQ—
Laurence Chandy (@laurencechandy) February 03, 2015
Utopia, you are standing in it! 
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