Matt Nolan

In support of progressive taxation

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After todays attack on effective “left-wing” politics of blanket transfers and the idea that we need government to save the day, I thought I should come out with a post in favour of other general government action.  So lets looks at progressive taxes.

It is common for economists to attack progressive taxation as it can be seen as:

  1. Unfair, given that some people who work have to get income have to pay a greater proportion of there income to the state (even more than a greater amount!)
  2. Unfair, because we may believe that most of the spending benefits people on lower incomes,
  3. Inefficient, given that we are taxing our “most productive” citizens at a higher marginal rate, reducing their labour supply.
  4. Or inefficient, because if the tax is passed on to the business, we are taxing highly skilled industries more than unskilled industries, which is a distortion.

However, there are reasons why society may want a progressive tax system, and when it would dominate other tax systems:
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jamesz

Make friends, not dams

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Federated Farmers’ press release:

…if government increase[s] infrastructure expenditure it should spend money on building dams rather than cycle lanes. …Water storage is critical to New Zealand’s future. It is well known that farming is the backbone of the economy. Current run of river water allocation systems see farmers too vulnerable to drought and floods.

The government’s State of the Environment report 2007:

The increase in total water allocation in New Zealand between 1999 and 2006 can largely be explained by the increase in demand for irrigation. The amount of consented irrigated land in New Zealand increased by 52 per cent over this period…

Water is getting scarcer and scarcer worldwide and it’s only a matter of time before NZ feels the pinch, too. Farmers say they should get the water becasue they’re our ‘backbone’; environmentalists throw up their arms in dismay; the government implements ad hoc water restrictions and gets lobbied by everyone.

Luckily, economics provides a solution to the problem: Read more

Matt Nolan

Election 2008: The day after

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So what happened – what party got the most votes?  Did the Greens break 10%?  Did Winnie get back in?

I voted on Monday the 3rd before I went away (I am writing this on Sunday though – so I don’t know who I voted for!).  I am sure its been very exciting.

I do wish I was involved in some election night drinking games.

Matt Nolan

Election 2008: Warming up for the night ahead

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Well many of you should have already voted – if you haven’t I’ll be sure to kick your ass.

If I was in the country I would be extremely keen for an election night drinking game.  As there is no game avaliable on the Sunday I am writing this I will just link to last times one:

Drinking game (ht Not PC)

I’m sure if you just changed a few of those things it would be all good 🙂

jamesz

Franken-regulation

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Greenpeace’s environmental plan has just been released and it says pretty much what you’d expect: be more sustainable. The thing about it that intrigues me is the presence of an emissions trading system, efficiency standards for all energy consuming appliances and legally binding targets for renewable energy usage.

The point of trading systems is to internalise the costs of emissions in the most efficient way by allocating the costs through a market mechanism. Why would you then try to second guess the market by forcing emissions standards and renewable energy targets on people? Read more

goonix

Private prisons: National’s policy and “the proper scope of government”

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Today National released their corrections policy, which would allow the private sector to tender for the management of prisons.

Although not a completely ‘new’ concept for New Zealand (Auckland Central Remand Prison was privately run under the last National Government) it nonetheless raises the issue of when is it appropriate for such services to be ‘contracted out’ rather than provided ‘in-house’ by the government.

Hart, Schleifer and Vishny’s “The Proper Scope of Government: Theory and Application to Prisons” asks the question when should a government provide a service in-house, and when should it contract out provision? (Anyone interested in the full article may be able to locate it here).

The authors’ develop a model for asset ownership (in this instance a prison), which can be owned by the private sector, who contract back to the government, or alternatively can be owned outright by the government.

The central finding of the paper is that the private sector has relatively stronger, but seemingly contradictory, incentives to both reduce costs (driven by a profit motive, which comes at the expense of quality) and increase quality (to get a higher price from the government, who is an ongoing buyer of the service). In this instance the quality of a prison entails order in the prison, amenities that prisoners receive and rehabilitation.
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