What Was the Industrial Revolution? – Robert E. Lucas
18 May 2016 Leave a comment
in economic growth, economic history, fiscal policy, Robert E. Lucas Tags: industrial revolution
What 3 skills do public policy analysts need?
27 Apr 2016 Leave a comment
in applied price theory, business cycles, economics of bureaucracy, economics of regulation, fiscal policy, macroeconomics, monetary economics Tags: anti-market bias, antiforeign bias, expressive voting, lags on monetary policy, makework bias, rational rationality, tax incidence, The fatal conceit, The pretense to knowledge
I used to argue that the quality of public policy making would double if public policy analysts remembered the first 6 weeks of microeconomics 101 but on reflection more than that is required.
Could we economists today ever show such self-restraint about our own expert recommendations? https://t.co/2UE12JuIgn—
William Easterly (@bill_easterly) November 24, 2015
I picked up my initial insight out when working as a graduate economist in the Australian Department of Finance. That was a few years ago.
I am now concluded that policy analysts also need to know the basics of the economics of tax incidence. Who pays the tax depends on the elasticities of supply and demand rather than who writes the check to the taxman.
The number of times that I have read media and public policy analysis saying who pays the tax is the writer of the cheque to the taxman is beyond counting.
There is also what to do about unemployment and inflation. Do not just do something, sit there might be good advice on most occasions. As Tim Kehoe and Gonzalo Fernandez de Cordoba explain in the context of first do no harm:
Looking at the historical evidence, Kehoe and Prescott conclude that bad government policies are responsible for causing great depressions.
In particular, they hypothesize that, while different sorts of shocks can lead to ordinary business cycle downturns, overreaction by the government can prolong and deepen the downturn, turning it into a depression.
@BernieSanders nothing is free in Denmark
24 Apr 2016 Leave a comment
in applied welfare economics, fiscal policy, politics - USA, public economics Tags: 2016 presidential election, Denmark, growth of government, size of government, social insurance, taxation and labour supply, welfare state
Did the rise of welfare state cause more inequality in wealth?
18 Apr 2016 Leave a comment
in fiscal policy, labour economics, labour supply, macroeconomics, poverty and inequality, public economics Tags: growth of government, income inequality, measurement error, Ricardian theory of budget deficits, Social Security, top 1%, wealth inequality
Markus Poschke and Barış Kaymak have just put out a paper arguing that increased social spending is a major driver of wealth inequality:
Another important and often overlooked third factor is the rise in the generosity of government transfers since 1960, mostly due to the expansion of public pensions (social security) and the introduction of public health insurance for the elderly (Medicare).
Combined spending on these two programs accounted for almost 9% of US GDP in 2010, up from less than 3% in 1960…
These government programmes tend to curb the need to rely on personal savings for retirement, especially among low and middle-income households, and might thus explain why their share in total wealth has declined.
This makes a good to good degree of sense. I have previously argued that using the arguments of Edward Prescott that it is not wise for people on ordinary income to save for their retirement when they can go down to the local Social Security office and claim an old age pension.
51% of nonretirees doubt they will receive Social Security… on.gallup.com/1NcwzEa #GallupDaily http://t.co/ZhKnHYtr1X—
(@GallupNews) August 13, 2015
It is even less wise to save that for retirement if those savings reduce your eligibility for an old age pension. Far better just to invest in a nicer house and pass it on to your children. Poschke and Kaymak note that measures of private wealth inequality miss these claims to old age pensions:
… statistics on wealth inequality that do not capture households’ claims on the public sector are incomplete and overstate top wealth shares.
This is not a new argument. Back when the Ricardian theories of budget deficits came to prominence and before that in debates on theories of the public debt, the more Keynesian sides of those arguments did argue that people were irrational for not including their old age pension entitlements under social security schemes in their calculations of their wealth.
Some of their taxes were paying for their future old age pension and were another form of wealth rather than a tax. As such, taxpayers should regard this part of their taxes as investments and not cutting back their labour supply in response as they do to other taxes.
How much of the rise in wealth inequality is due to this failure to measure Social Security wealth as represented by old age pension entitlements? Their estimate is about 25%:
…technological factors play a dominant role not only for changes in income inequality, as is well known, but also for wealth inequality. As high-earning households save part of their additional income, their share of wealth also rises.
This channel accounts for about half of the total increase in wealth inequality. Tax cuts and the expansion of transfers each account for about half of the remainder…
While tax cuts encourage saving, larger transfers reduce saving incentives for retirement, in particular for low and middle income groups. This implies that these groups’ share of private wealth declines.
Note though that this is partly due to the fact that measures of private wealth inequality, like those compiled by Saez and Zucman, do not include claims to future government transfers, like social security, which constitute wealth for their owners.
@garethmorgannz gives optimal tax theory a pass once again @JordNZ
17 Apr 2016 Leave a comment
in applied price theory, entrepreneurship, fiscal policy, macroeconomics, politics - New Zealand, public economics Tags: company tax, Gareth Morgan, rational irrationality, taxation and entrepreneurship, taxation and investment, taxation and labour supply, taxation of capital income
The Morgan Foundation gave optimal tax theory a pass in yesterday’s publication about taxes on land and capital. Gareth Morgan is keen on a comprehensive capital tax.
Source: Taxing Wealth & Property – What Works? A Morgan Foundation Report.
This failure to refer to optimal tax theory is despite the Foundation’s strong commitment to evidence-based policy. Any discussion of tax policy that is evidence-based must refer optimal tax theory.
Source: Morgan Foundation, Public Policy Education.
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Life expectancy is increasing, but so is poor health in old age
05 Apr 2016 Leave a comment
in fiscal policy, health economics, macroeconomics Tags: ageing society, disabilities, life expectancies
Core Crown net debt in New Zealand June years, 1997–2015, % of GDP
01 Apr 2016 Leave a comment
in fiscal policy, macroeconomics, politics - New Zealand Tags: budget deficits, government debt
@garethmorgannz’s #UBI finishes the job on #GenerationRent @JordNZ
29 Mar 2016 Leave a comment
in fiscal policy, labour economics, labour supply, macroeconomics, politics - New Zealand, population economics, poverty and inequality Tags: Edward Prescott, New Zealand superannuation, old age pensions, social insurance, timing inconsistency, universal basic income, welfare state
Gareth Morgan revealed today a hitherto unnoticed design feature in his Universal Basic Income of $11,000 per annum. It will be phased in over a long time. That will mean that Generation Rent will continue to pay taxes to fund a universal old age pension for their parents and grandparents, but will not be fortunate enough to receive that themselves.
Source: Morgan Foundation (2016) Taxpayers Union Critique of the UBI just bonkers – again
They are not left of their own devices. Generation Rent is expected to save the Universal Basic Income they receive over their working lives to avoid living in poverty in their retirement. Does not strike me as a political winner.
The Morgan Foundation does not understand the implications of time inconsistency for retirement savings policy:
- Which is better? Save for your retirement through the share market or save to own your own home and then present yourself at the local social security office to collect your taxpayer funded old-age pension?
- Under this fine game of bluff, you bleed the taxpayer in your old age and pass on your debt-free home to your children.
This strategy of not saving much for retirement is rational for the less well-paid. The family home is exempt from income and asset testing for social security. If you lose you bet, sell your house and live off the capital. For ordinary workers, this is a good bet. The middle class might prefer to live in a more luxurious retirement.
For ordinary workers, whose wages are not a lot more than their old age pension from the government, a government funded pension is a good political gamble. The old-age pension for a couple in New Zealand is set at no less that 60% of average earnings.
Edward Prescott argues for compulsory retirement savings account albeit with important twists because it is otherwise irrational for many to save for their retirement against the background of a welfare state:
The reason we need to have mandatory retirement accounts is not because people are irrational, but precisely because they are perfectly rational — they know exactly what they are doing.
If, for example, somebody knows that they will be cared for in old age — even if they don’t save a nickel — then what is their incentive to save that nickel? Wouldn’t it be rational to spend that nickel instead?
…Without mandatory savings accounts we will not solve the time-inconsistency problem of people under-saving and becoming a welfare burden on their families and on the taxpayers. That’s exactly where we are now.
British tax mix as a percentage of GDP
19 Mar 2016 Leave a comment
in economic growth, economic history, entrepreneurship, fiscal policy, macroeconomics, public economics Tags: British disease, British economy, growth of government, sick man of Europe, size of government, taxation and entrepreneurship, taxation and investment, taxation and labour supply, Thatchernomics
The large rise in tax in personal income in the 1970s coincided with the rise of the British disease and British economy becoming widely known as the sick man of Europe. The large decline in taxation in personal income under Thatchernomics was followed by an economic boom.
Source: OECD Stat.
Tax mix in the USA as a percentage of GDP since 1965
18 Mar 2016 Leave a comment
in business cycles, economic history, fiscal policy, great recession, macroeconomics, politics - USA, public economics Tags: company tax, company tax rate, growth of government, GST, indirect taxation, property taxes, size of government, Social Security contributions, taxation and investment, taxation and labour supply, welfare state
The only major change in the US tax mix in the last 50 years has been greater reliance on social security contributions.
Source: OECD Stat.
The share going to income taxes bobbing up and down quite a lot in the last 30 years much of that to do with the business cycle. In the 1990s, the share of taxes from personal income increased during boom times. In the Great Recession, the tax share to income tax rose with the declining economy as did that on corporate profits.
Lunch and Conversation with Thomas J. Sargent
18 Mar 2016 Leave a comment
in economic growth, economics, Euro crisis, fiscal policy, global financial crisis (GFC), great recession, job search and matching, macroeconomics, monetary economics, Public Choice Tags: Thomas Sargent
General government expenditure and general government revenue as a % of Australian and New Zealand GDP since 1970
13 Mar 2016 Leave a comment
in budget deficits, economic history, fiscal policy, macroeconomics, politics - New Zealand, politics - USA, public economics Tags: Australia, growth of government, size of government
I do not trust the numbers for New Zealand prior to the early 1990s released by the OECD. New Zealand simply did not have a tax structure including a GST in the double digits back then to support estate of that size. Nonetheless, the size of government in New Zealand is systematically larger than in Australia, a richer country which can afford a large government and generous welfare state.
Source: General government – General government revenue – OECD Data and Data extracted on 12 Feb 2016 08:45 UTC (GMT) from OECD.Stat from OECD Economic Outlook November 2015.
General government spending and general government revenue as % of US GDP since 1970
12 Mar 2016 Leave a comment
in budget deficits, economic history, fiscal policy, politics - USA, public economics Tags: growth of government, size of government
Source: General government – General government spending – OECD Data and Source: General government – General government revenue – OECD Data.
Presidential candidate tax plans and economic growth
06 Mar 2016 Leave a comment
in applied price theory, economic growth, fiscal policy, macroeconomics, politics - USA, public economics Tags: 2016 presidential election, taxation and entrepreneurship, taxation and investment, taxation and labour supply
[/embed]https://www.facebook.com/UnbiasedAmerica/photos/pb.123061011213236.-2207520000.1457089554./449398021912865/?type=3&theater[/embed]
Utopia, you are standing in it! 
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