Thursday, 2 April 2015

Flat tax

Alberta's abandoning its flat provincial income tax. Here's Bill Watson's requiem for it:
Everyone’s assumption is that flat-rate taxes can’t be progressive. That presumably bothers Alberta’s Conservatives, who, unlike Ottawa’s, are still at least nominally Progressive. But the assumption isn’t true, at least not in terms of average taxes. If some minimum amount of income is exempt from taxation — and in Alberta it can be over $18,000 — then the average rate of tax rises with income. For example, at a 10% rate the first $10 of income above $18,000 generates a $1 tax liability, which produces an average tax rate of $1/$18,010 or just 0.006%, a rate that rises — progressively — with every extra dollar of income and approaches, even if it never quite reaches 10%.
Some studies done by perfectly reputable economists, i.e., not “far-right” nutbars, suggest the best rate structure, even taking the interests of poor people into account, may by an umbrella, in which rates rise for a while but then, for the super-mobile highest earners, actually decline—though try selling that in the current inequality-obsessed political environment!
The full article is embedded below, in an ingenious setup that Canada's National Post is using. When I selected the text to copy, I had a pop-up asking if I'd like a licence. I said yes, then saw I could embed the full article so long as I also embedded the paper's ads with it. And so it is below. Instead of yelling about bloggers being content thieves (while scraping their scoops without or with little attribution), the Post's making it easy. I like it.

William Watson: Requiem for the flat tax

By ending its flat tax rate Alberta is snuffing out an important policy beacon for all Canadians To conservatives everywhere, a sad part of the latest Alberta budget was the extinguishing of the province's flat tax, which Ralph Klein introduced in 2001. Albertans with taxable income have been paying 10% on any and all additions to…

Debating the case for economic growth

If you're in Wellington on 16 April, do join us for a fun evening. Chris Bishop, David Clark and James Shaw will be debating the Case for Economic Growth. I'll lead off with a brief discussion of the report, then we'll find out what the politicians make of it.

Please do register here if you're planning on attending.

Wednesday, 1 April 2015

It's taxpayer-funded lobby groups, all the way down

“Today we have lodged an application to receive funding from Treasury to become a taxpayer-funded lobby group to oppose the other taxpayer-funded lobby groups, who in turn lobby taxpayer-funded bureaucrats, politicians and themselves.”
Jordan Williams, in a Taxpayers' Union April 1 press release.

Tuesday, 31 March 2015

Hooton on Sports Econ 101

Matthew Hooton nails this one, with some help from Andrew Zimbalist:
I do know that the Cricket World Cup has been an outstanding success: Christchurch’s return as an international venue; the destruction of England at Wellington; the Auckland nail-biter against Australia; Ireland’s triumph over the West Indies at Nelson; Martin Guptill topping the batting with his 237 not out and Tim Southee the bowling with 7/33. The International Cricket Council must be bonkers to stick to its plan to cut the number of teams from 14 to 10 for 2019.
I also know we will soon be inundated with “studies” that the tournament has delivered a huge boost to the economy. The Ministry of Business, Innovation and Employment will be at the forefront. But what has been obvious anecdotally for a long while has been confirmed more systematically by Professor Andrew Zimbalist in his new book Circus Maximusreviewed in the Economist a couple of weeks ago: it’s all crap.
He shows that perhaps the one thing economists have proven beyond any doubt over the past hundred years is that major events never deliver any but the most fleeting economic benefits, if any at all. The overwhelming majority of events are a drain on GDP. The same is true of sports teams and new stadiums: none has ever delivered an improvement to employment or GDP. It would be remarkable were it any different for concerts, arts exhibitions, sculpture walks and the rest.
Oh, yes, there are plenty of analyses that show otherwise: those commissioned by the sports or arts associations who want the honour of hosting the event, the politicians and bureaucrats who want the front-row seats and tourism lobbyists who perceive they will gain financially, but even they’re usually wrong too.
Hooton later echoes a line I've often heard from Seamus Hogan, but that I'm not sure he's blogged [Update: here]: if you're going to run these things, justify them on the basis of their being a fun party and nothing more. Maybe the party is worthwhile; maybe it isn't. But don't pretend that it has big economic benefits.

Monday, 30 March 2015

Iwi, Kiwi, Canuck

John Ansell's reach is long: the billboard campaign he ran for Don Brash has been picked up in Canada.

Here's Ansell's 2005 billboard:

There were a series of others, always with the very simple 'Tax / Cut' or 'Waste / Not' framing. [Update: they're all here!]

Peter McCaffrey retweeted the latest Canadian incarnation, from Alberta's Wildrose spinoff of the Alberta Progressive Conservative Party:

This apparently isn't the first appropriation of a great billboard idea. A few others were sent me by an email correspondent. I'm not sure if these were actually used in the 2006 Canadian election, or if they were mocked up by party activists.

All of these kept the very simple contrast.

The NDP's version (again - I don't know whether it was from activists or the party proper) was a bit ... cluttered.

It reminds me of Homer's attempt to chime in during "Who needs the Kwik-E-Mart".

Boris Johnson's even been in on the theme, but with the appropriate style.

Kiwi electoral ingenuity, taking over the world. And Alan Bollard thinks we're bad at marketing. On the other hand, I doubt anybody paid royalties to Ansell...

Friday, 27 March 2015

A low cost way to help the retailers

Eric asks
If Hartford, or anybody else, is able to come up some better way of processing GST at the border, without imposing undue hassle on either those who might be deterred from exporting to New Zealand or on Kiwi shoppers, and without collection costs that exceed the value of the GST collected, that would be great.
I’ll quibble a bit at the wording, the collection costs should not exceed the value of the improved allocative efficiency from removing a tax distortion, not the revenue collected, which is likely a much tougher hurdle, but either way I’m prepared to give it a go. 

My proposal will not just deal with the distortion that purchases by consumers that are made directly from overseas through on-line retailing receive a favourable tax treatment relative to those that are processed through an importer. It will also deal with a larger distortion in the GST. As it currently stands, the GST applied to imports does not apply to purchases made by New Zealanders while travelling overseas, and similarly the zero-rating of exports does not apply to the sale of services to foreign tourists while in New Zealand. That is, the current GST regime favours overseas tourism by New Zealanders over other imports, and penalises the New Zealand tourism industry relative to other exports.

So here is my proposal: Completely exempt all imports from the GST, and at the same time stop zero-rating exports and require firms to charge GST on all sales, including those to foreigners. Retail New Zealand should be happy, they would no longer be treated in differently from overseas on-line sellers in their tax treatment in New Zealand. And firms selling both overseas and in New Zealand would be happy to no longer have to have separate out sales overseas and domestic sales when filing their tax returns.

This idea runs completely counter to our inner mercantilist instincts, but our instincts don’t cope well with general-equilibrium reasoning. In my experience the greatest eye-opening moment you can give students in economics—the sort of epiphany that has them changing instantly from “this is obviously wrong” to “this is obviously right” is the Lerner symmetry theorem,  which shows that an import tax is exactly equivalent to an export tax. The idea here is that a tax on exports or imports is really a tax on trade. In the long-run, the present value of exports has to equal the present value of imports, as they are just opposite sides of the equals sign in a budget constraint. A tax on exports is a tax on imports, as it shifts resources away from producing for overseas (with the consequent importing from overseas that that allows) to producing for local consumption. (I was told that, during the Muldoon era, Treasury, knowing that it could not pursuade Muldoon to reduce tarrifs encouraged him in his policy of export subsidies, knowing that the latter would counteract the former.) 

In a country with a floating exchange rate, the way that the Lerner equivalence theorem would play out if it were to adopt the change from levying the GST on imports to levying it on exports, would be through a depreciation of the currency by the amount of the GST. So sure exporters would have to put up their prices to foreigners in NZ dollars by 15%, but the goods would not seem to be more expensive to foreigners because of the 15% depreciation. Similarly, the 15% GST coming off imports would be offset by the depreciation. In general, therefore, there would be no change, but with a few exceptions. On-line purchases would become 15% more expensive in NZ dollars due to the depreciation with no offsetting change in taxes. Trips overseas would similarly become 15% more expensive, but at the same time, New Zealand would become a far cheaper place for foreigners to visit, again.

I don’t imagine for a moment that any government would implement this policy. Instinctive mercantilism is too strong in all voters, and only a few have experienced the epiphany of general equilibrium reasoning. But this is not a “modest proposal” in the Swiftian sense. I am deadly serious. 

Why we drink

Maybe it's because I went to an econ grad programme where Geertz was on the syllabus, but anthropology and economics always seemed pretty complementary to me.

Anthropologists tend towards thick narratives describing the rituals we undertake in hopes of understanding the function they serve. Economists think about what ultimate good is being pursued in any action and how behaviours change with changes in the relative costs of undertaking different activities that further those ends. Whatever you might think about the rituals undertaken by your group, or somebody else's group, if you don't understand the functions they serve, you're going to mess things up if you blunder in with policies meant to change things.

And so we come to drinking rituals. Why do people go out in groups and consume alcohol together before engaging in particular types of normally proscribed behaviours? If some young men drink excessively and take dumb risks, might there be any underlying reason?

Anthropologist Anne Fox surveyed Australian and New Zealand drinking cultures for Lion; her report is hosted at Lion's website.

One of Anne's very good points is that alcoholic disinhibition effects are culturally constrained. There are prescribed sets of things that are allowed or excused while drunk, with others very much not.
The phrase “it loosens (or takes away) your inhibitions” is like a magical spell that releases drinkers from the normal rules of behaviour. Interestingly, the social rules of alcoholic disinhibition allow for certain behaviours but not others: no one becomes so disinhibited and ‘out of control’ that they steal or pickpocket from others, for example. Most people would not excuse theft because the person was drunk. Neither is it acceptable to insult or injure vulnerable members of society such as the elderly, handicapped or children. But taking off ones clothes, urinating (but not defecating), shouting, fighting, singing, flirting, and even going home with the ‘wrong’ person – are all blamed on the drink.
That isn't to say that these cultural issues are easily changed. But I do worry that public ad campaigns and public education campaigns highlighting all the nasty things people do while drunk, instead of modelling appropriate drinking behaviour: they may reinforce norms about what drunken behaviour looks like rather than counter them. A lot of the recent NZ public service ads on alcohol have been good on this front, like ghost chips.

I know a lot of the anti-alcohol brigade hates the paper, viewing it as trying to shirk blame from alcohol or divert attention from their preferred policies.

But there are important points in here. If young people drink to overcome social anxiety, then maybe we should worry about stronger substitutability between alcohol and other anxiety relievers than we otherwise might have (though the strength of such things remains an empirical question). If adults get drunk together as a form of social bonding and trust building, what of that is forgone in population-based measures hammering on all forms of consumption?

And, Fox's focus group work suggests areas worth trying in information campaigns. I know that information campaigns targeting kids have not proven particularly effective, but perhaps they've not been hitting the right messages. Fox writes:
It is vital that parents and teenagers understand how large amounts of alcohol can negatively affect a developing brain, and that brain development continues until around age 21. Young people we spoke with assumed that the reason for the under-18 prohibition was the impact of alcohol on behaviour. This simply led to exaggerated rebellion and resentment, as evidenced by the following typical comment:
“Before I was 18 I thought it was so hypocritical that we couldn’t drink. The grownups would get drunk at the weekends and not let us have any so we used to sneak it and steal it all the time and feel so clever doing it right under their noses! When my Dad caught me drinking with a friend when I was 15 he yelled at me and I yelled back ‘well you do it!’ and he said ‘Yes but I know how to handle it.’ That is so hypocritical. Even then I could handle it better than he did!” – Female, 22.
In focus groups where it was requested of us, at the end, we shared information about the devastating impact of drunkenness on brain development. This was invariably met with stunned silence followed by choruses of “why didn’t anyone tell us?”
Practical suggestions for reducing night-time violence? Minimising the stuff that causes frustration and conflict: good availability of clean and safe toilets; good availability of late-night food service; visible but not heavy-handed policing; fines for infringement of public order (drunk & disorderly); and, decent transport options late at night.

Fox also points to parts of the alcohol-aggression literature that I hadn't seen before. The common lab experiments there seem to provide alcohol in varying doses, then have participants react to a fictitious opponent's moves in different kinds of games. For example, if a fictitious opponent steals from your earnings or endowment, you (as subject) could respond by ignoring the opponent or punishing the opponent where punishment is costly.

Increased punishment is taken as evidence of aggression in these experiments, but it's manifestly unclear to me that it should be taken as such. The experimental economics literature looks at altruistic punishment, where those in a public goods game can pay to punish a defector who hurts group performance. Punishment is there viewed as a second-order public good: if it is costly to you to punish someone who is behaving in ways that hurt the group, your punishment is altruistic, not aggressive.

There are other kinds of studies drawing links between alcohol and aggressiveness, but I worry that lab experiments taking punishment as aggression might be missing an alternative explanation.