Most healthcare expenditures are in the last 3 to 6 months of life. Smokers and overeaters live shorter lives. This can save more than it costs to the health budget. That finding is sufficiently frequent as to put the fiscal case for junk food taxes and sugar taxes on the canvas but still with a chance of getting back up to fight on.
At a minimum, it makes junk food and sugar taxes a legitimate topic for honest disagreement. That is before you consider that people have the right to live their lives according to their own lights and make a few sometimes big mistakes along the way as part of finding their way.
Two dogs of an investment propped up a $20 billion portfolio that a few years later was worth less than 1/5 of that. Both of these stalwarts are now worth not even one dollar.
Source:New Zealand Treasury – information released under the Official Information Act, January 2016.
It will be a slow train coming before the Morgan Foundation calls for a cut in the tobacco tax because the optimal Pigovian tax on it is already too high from the perspective of externalities or the burden on the public health budget.
I think smoking is disgusting and unhealthy but that does not give me the right to regulate the disgusting habits of others. Where would I start in regulating risk-taking? I would have to start with swimming, tramping and biking. They are all high-risk activities of the self-righteous? Not everything others do that I do not like causes an externality.
Few economists work on the economics of smoking other from the starting point that it should be reduced. Those that do not share that starting point such as Robert Tollison, Gary Anderson and William Shughart are subject to relentless personal abuse. They are immediately denounced as the paid whores of the tobacco industry.
That was one of the reasons I got interested in the economics of smoking. There must be something in the case made by Robert Tollison and others questioning tobacco taxes if the first line of argument against them is you are saying that because someone paid, you low down dog.
With a straight face, the Labour Party and the Greens claim that state-owned enterprises should not be sold because taxpayers give up the future dividend stream.
Source: New Zealand Treasury – data released under the Official Information Act.
Leaving to one side what the sale price is the net present value of, for as far back as I could obtain data from the Treasury, it is a rare year in which the taxpayers does not pour more money into state-owned enterprises than they get back in dividends.
Transpower is carrying the entire state-owned enterprise portfolio. Earlier on, Solid Energy – a now bankrupt coal mining company– was carrying the portfolio in terms of cash flow to the taxpayer.
The New Zealand Treasury understands neither who pays company taxes when capital is internationally mobile nor why Ireland was relentlessly bullied over its 12.5% company tax rate.
The Treasury makes the surprising claim that the benefits of company tax cuts will leak overseas to non-residents because of the high level of foreign capital ownership.
Now if New Zealand were to substantially cut its company tax rate, hell will freeze over before the Australian Treasurer rings up and say thanks mate. The Australian worry will be the loss of investment and corporate headquarters to New Zealand.
"Corporate inversions"…"Naked Inversion"… @etoder @NPRATC – Is it OK for American companies avoid paying taxes http://t.co/vZub5Kg1V7
— Tax Policy Center (@TaxPolicyCenter) July 18, 2014
Who pays company tax when capital is internationally mobile is one of the easiest questions you can get in an economics quiz. Just trace out how investors will react to a lower company tax in New Zealand.
If company taxes are lower in New Zealand, more investment will flow into New Zealand, increasing the size of the capital stock in New Zealand and with it wages in New Zealand because New Zealand workers have more capital to work with.
When will these international capital inflows stop? It is obvious! When risk-adjusted after-tax returns equalise for internationally mobile investors. They will adjust their portfolios so that after-tax returns equalise across tax jurisdictions.
The after-tax returns are equalised by the competing tax jurisdictions having different before-tax rates of return on capital and therefore costs of capital.
Jurisdictions with high company taxes have to offer larger before-tax returns so that internationally mobile investors receive the same risk-adjusted after-tax return everywhere. High tax jurisdictions boost before tax return by wages being lower in the high tax jurisdiction.
High company taxes are paid for by the workers of the jurisdiction concerned through having to accept lower wages to work with the same amount of capital. They must compensate foreign investors by boosting before-tax returns so that their after-tax rates of return equalise across competing tax jurisdictions.
The New Zealand Treasury missed this most basic point about who pays a company tax in a globalised world. The Australian Treasury is right on top of this basic piece of economics:
The mobility of capital refers to how easily financial capital (debt and equity) flows into and out of a country. Greater capital mobility will shift more of the burden of taxation from capital to labour through larger changes in the domestic capital stock, and hence in domestic labour productivity and wages (Grubert and Mutti 1985; Gravelle 2010).
In this situation, a reduction in the company tax rate will result in large inflows of foreign capital to ensure that there is no material difference between the after tax (risk adjusted) rate of return on investment in Australia and the rate available abroad.
The many attempts at company tax harmonisation by the European Union and G20 are motivated by the fear of large capital flows into the lower tax jurisdictions.
No high-tax country views the low company taxes in Ireland, Singapore and Hong Kong as a windfall where they can raise more tax revenue on the additional dividends repatriated from lower tax jurisdictions.
Very large economies such the USA can get away with a slightly above average rates of company tax because the number of other places to go are fewer.
A small open economy such as New Zealand should safely assume that most to all of burden of the company tax is on New Zealand workers through lower wages.
Capital migrates from high-tax to low-tax locations, reducing capital-to-labour ratios in high-tax countries. The low-tax countries experience higher capital-to-labour ratios, a higher marginal product of labour, and higher wages.
I will be putting in an Official Information Act request seeking to find out whether the work of Arnold Harberger influences their company tax briefings to ministers. I will also add any work they are done on corporate inversions and the company tax rate in Ireland.
Most students do not owe that much compared to the $1/2 million graduate premium over their life plus marrying someone who is also a graduate. 60% owe less than $20,000 and 80% owe less than $30,000. People not smart enough to go to university or Polytech can manage to save that to buy a car
Self-appointed social justice warriors in the New Zealand Labour Party and New Zealand Greens pander to this middle class greed. They should be ashamed of themselves.
Despite all the passions about the TPPA, the correct starting post for an economist on regional trade agreements is lukewarm opposition. That is the position of Paul Krugman. Paul Krugman summarised the TPPA well recently from a standpoint of a professional economist:
I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things, not good, even from an efficiency standpoint….
What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Republicans in general are mad because the labour protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer.
Krugman then reminded that a trade agreement is most politically viable when it is most socially harmful. This is the point that the opponents of the TPPA miss. They will not want to discuss how some trade agreements are good deals but others are bad. That would admit that trade agreements can be welfare enhancing, and sometimes they are but sometimes not.
The correct economic name for free trade agreements is preferential trading agreements. These agreements give tariff and other preferences to some countries over others.
Tariffs are lower for the members of the agreement, creating more trade, but there is also trade division.
CER offers a neat example of trade diversion. Instead of buying cars from the cheapest source and collecting tariff revenue, the hopelessly inefficient Australian car industry did not have to pay tariffs so it made New Zealand into a major export market until tariffs were abolished in 1998.
Less tariff revenue because of CER but we still paid way over the odds for Australian instead of Japanese cars. We were worse off. Less tariff revenue but car prices pretty much as high as before.
New Zealand tariffs are minimal these days. The TPPA reduces the key tariffs on our exports at an excruciatingly slow pace.
There is no discussion of trade diversion in the National Interest Analysis before this committee. For that reason alone, the National Interests Analysis is inadequate and should be returned to the Ministry for further work. Right now, it would not pass a first semester test in a basic international economics course because that most basic risk from trade agreements is not discussed.
Most of the TPPA is not about tariffs. Many of these other chapters are suspicious add-ons to trade talks.
Developing countries rightly regard trade and environment clauses in any trade agreement as a new form of colonialism.
Unions, the Labour Party and Greens happily demand these intrusions into the regulatory sovereignty of developing countries to protect special interests against import competition.
The sovereignty objections to trade agreements are no different to those that can be made to climate change treaties and International Labour Organisation conventions. It is all in the details – what do we get in return?
Consistency would help too. Trade agreements should not include labour or environmental standards as they, for example, limit our right to deregulate our labour market. Be careful for what you wish for when you oppose international agreements on sovereignty grounds.
The intellectual property chapters of the TPPA are truly suspicious. With each new day, the case for patents and copyrights is weakening in the economic literature. Some have made powerful arguments to abolish patents and copyrights altogether.
There are modest extensions of the term limits of drug patents and much more mischief on copyright terms. These should be watched carefully in future trade talks and one day will be a deal breaker.
Good arguments can be made against investor state dispute settlement provisions even after the carve-outs. These provisions have no place in trade agreements between democracies.
Foreigners can take their chances in democratic politics like the rest of us. They might occasionally get a short deal because of left-wing or right-wing populism but these gusts of xenophobia are mostly an occasional irritant in the rich fabric of Western democracies.
Developing countries sign-up to investor state dispute settlement to signal they are open for business. Foreign investors do not have to put up with their corrupt courts and bureaucracies and hopelessly venial politicians.
The logic of regional trade negotiations is we cut tariffs we should have cut long ago in return for others cutting their tariffs which they too should have cut long ago.
Much is made of the cost-benefit analysis of the TPPA. All the critics are really saying is cost benefit analysis is really hard and often imprecise.
If the econometric estimates were not in doubt in this or any other public policy field, the academics are simply not trying hard enough to win tenure and promotion. Academics make their careers by being contrarian.
For this lukewarm opponent of regional trade agreements, the TPPA is a so-so deal with small net gains. There is no harm in signing it.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
Utopia, you are standing in it! 
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