Tax reform leads to higher taxes – the evidence on the GST

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The GST increased from 10 to 15% in New Zealand; more than doubled in the UK; but GST rates were stable or went up and down in the remaining Anglo-Saxon countries.

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As for a selection of other non-Anglo-Saxon countries , Brennan  and Buchanan were right. Tax reforms such as a broad-based consumption tax leads to higher taxes through time.

The GST (goods and services tax) in Europe is known as the value added tax (VAT).

Source: OECD Tax Database – OECD.

James Buchanan’s most brilliant 400 words

https://twitter.com/trentjmacdonald/status/566132963641790466

 

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Gordon Tullock on avoiding difficult decisions about saving lives – updated

Gordon Tullock wrote a 1979 New York Law Review book about avoiding difficult choices. His review was of a book by Guido Calabresi and Philip Bobbitt called Tragic Choices which was about the rationing: the allocation of kidney dialysis machines (a “good”), military service in wartime (a “bad”), and entitlements to have children (a mixed blessing).

Front Cover

Tullock argued that we make a decision about how to allocate resources, how to distribute the resources, and then how to think about the previous two choices. People do not want to face up to the fact resources are scarce and they face limits on their powers.

To reduce the personal distress of making these tragic choices, Tullock observed that people often allocate and distribute resources in a different way so as to better conceal from themselves the unhappy choices they had to make even if this means the recipients of these choices are worse off and more lives are lost than if more open and honest choices were made up about there only being so much that can be done.

The Left over Left and union movement spends a lot of time pontificating about how we must not let economics influence health and safety policy rather than help frame public policy guidance on what must be done because scarcity of resources requires the valuation of life in everything from health, safety, and environmental regulations to road building. health budgeting is full of tragic choices about how much is spend to save so lives and where and for how long.

The Left over Left and the union movement deceive themselves and others into make futile gestures to make themselves feel good. These dilettantes cannot assume that they are safely behind a veil of insignificance. They have real influence on how public policy on health and safety are made.

A major driver of the opposition among the Left over Left and the union movement to the use of cost-benefit analysis and the valuation of statistical lives is its adoption makes people confront the tragic consequence of any of the choices available to them.

By saying how dare you value a statistical life does not change the fact that choices made without this knowledge will still have tragic consequences, and more lives may be lost because people want to conceal from themselves the difficult choices that they are making about others as voters and as policy-makers.

One of the purposes of John Rawls’ veil of ignorance and Buchanan and Tullock’s veil of uncertainty is that the basic social institutions be designed and agreed when we have abstracted from the grubby particulars of our own self-interest.   Buchanan and Tullock explain the thought experiment this way

Agreement seems more likely on general rules for collective choice than on the later choices to be made within the confines of certain agreed-upon rules. …

Essential to the analysis is the presumption that the individual is uncertain as to what his own precise role will be in any one of the whole chain of later collective choices that will actually have to be made.

For this reason he is considered not to have a particular and distinguishable interest separate and apart from his fellows.

This is not to suggest that he will act contrary to own interest; but the individual will not find it advantageous to vote for rules that may promote sectional, class, or group interests because, by supposition, he is unable to predict the role that he will be playing in the actual collective decision-making process at any particular time in the future.

He cannot predict with any degree of certainty whether he is more likely to be in a winning or a losing coalition on any specific issue. Therefore, he will assume that occasionally he will be in one group and occasionally in the other.

His own self-interest will lead him to choose rules that will maximize the utility of an individual in a series of collective decisions with his own preferences on the separate issues being more or less randomly distributed.

Behind the veil of ignorance and the veil of uncertainty, we would all agree that resources are limited, including in the health sector and some drugs can’t be funded – choices must be made.

Once we go in front of the veil of ignorance and find out that we are the one missing out on that drug, naturally, our views will change.  We agreed to these rules  as fair for the distribution of basic social resources when, as John Rawls put it:

…no one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like.

Is always the case that someone just falls on the other side of any line in the sand. If you move that line, there is always another set of people who are just on the other side.

James Buchanan on the constitutional economics of libertarians

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Buchanan and Tullock on the calculus of politics

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Politics without romance

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Same players, different game: how better rules make better politics

 

Neoclassical economists think the economy is freestanding and ignore institutions!

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1991 was awarded to Ronald H. Coase:

for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2009 to

Elinor Ostrom “for her analysis of economic governance, especially the commons” and Oliver E. Williamson “for his analysis of economic governance, especially the boundaries of the firm”

The Royal Swedish Academy of Sciences has decided to award the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for 1993 jointly to Robert W. Fogel and Douglass C. North

for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.

The Royal Swedish Academy of Sciences has decided to award the1986 Alfred Nobel Memorial Prize in Economic Sciences to Professor James McGill Buchanan for

his development of the contractual and constitutional bases for the theory of economic and political decision-making.

In praise of traffic cops

Due to budget cuts, 35% of Oregon State Highway Police were laid off. These mass layoffs dramatically reduced citations and resulted in a 10-20% increase in injuries and fatalities.

The strongest effects were under fair weather conditions outside of city-limits where state police employment levels were most relevant.

These results in DeAngelo and Hansen’s “Life and Death in the Fast Lane: Police Enforcement and Traffic FatalitiesAmerican Economic Journal: Economic Policy 2014 suggest that a highway fatality can be prevented with $309,000 of additional expenditures on traffic police.

A standard measure of the “value of a statistical life” is it is worth taking regulatory or law enforcement actions that reduce the risks of death when the costs of these actions are less than about $9 million per life saved.

Road safety is an area where James Buchanan’s punishment dilemma is strong:

For some laws or behavioural rules, the individual’s self-interest may override adherence [to the law], at least in certain circumstances.

Traffic violations offer a good example here.

Recognizing that he may himself violate traffic regulations on occasion, the individual may be reluctant to accept institutions that impose severe penalties, despite his preferences that all “others” than himself should be led to obey the general rules by sufficiently severe sanctions.

Just as the individual prefers that all others abide voluntarily by law while he remains free to violate it, so, too, he prefers that differentially severe punishment for law violation be meted out to others than himself.

Voters are less than keen to support strong penalties and convict when sitting on juries because of the fear that there but for the grace of god go I: that they would be in the dock at the receiving end of the heavy punishments.

If we commit to punish offenders and those who might commit offenses are deterred by this commitment to punish them, there would be fewer offenses. This also means doing the unpleasant things of meeting out these punishment when there are offenses by the undeterred:

  • It is painful to subject others to punishment (“son, this is going to hurt me as much as it hurts you”); and
  • It is even more painful to vote for penalties that may be imposed on yourself in person.

The initially low penalties for causing death by dangerous driving is an example of the punishment dilemma. These penalties only slowly increased over several decades as societal attitudes hardened.

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