Matt Nolan

Jawboning productivity?

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Dr Cullen has told businesses to increase productivity. Although this sounds utterly ridiculous, given that businesses will make all profitable investment they can in order to make their output at a lower cost (unless you believe there is a conspiracy to keep wages low 🙂 ) there could possibly be some method to his madness.

Treasury has been working hard on the productivity issue this year, but it is a difficult issue. If we could costlessly increase our productivity then we would have no trade-offs, as output could become un-limited. As a result, the trade-off they have been interested in is the trade-off between current investment in productivity and the future benefits. To make matters even more difficult, the factors lying behind productivity remain somewhat of a black box – a subject where an individuals industry expertise trumps the musings of a whole team of economists.

Given that information regarding productivity is implicitly tied up in businesses and given that the choice of investment in infrastructure and R&D are often subject to positive spillovers, Dr Cullen’s strategy of Jawboning may be ingenious.

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Matt Nolan

A tax free threshold?

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The support for a tax free threshold in New Zealand appears wider than for almost any other policy. The right supports it, the left supports it – then why is it not government policy, and why do I not support it?

A tax free threshold at $9,000 would cost approximately $3.5bn (according to Patrick Nolan’s NZIER tax cut calculator from November 07), and would give everyone earning over $9,000 the same chunk of money (assuming that other tax thresholds remain unchanged).

Lets discuss why the policy may be popular along the political spectrum:

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Matt Nolan

Congestion, carbon, and bus lanes

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Following yesterdays suggestion to lower the speed limit in order to reduce carbon emissions I’ve got to thinking about congestion and carbon.

Firstly, I’ll put down the obvious problems with this scheme. Lowering the speed limit will make congestion problems worse – as in the short run cars will be on the road for longer. In order to solve these congestion problems the government wants to introduce “congestion charging” in urban centres. This will, over time, lead to more urban sprawl, which will increase the distance people drive, canceling out some of the carbon savings.

However, I doubt the scheme is serious – the social cost associated is likely to exceed the paltry reduction in carbon emissions.

Anyway, this scheme is not even the focus of this post. Instead I wish to discuss congestion and why bus lanes could be a useful mechanism in the case of congestion (even though the guys from Top Gear don’t like them).

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Matt Nolan

Why is the NZ government buying the rail network?

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So its official – our government has repurchased the rail network (blog commentary here, here, and here). Now such a purchase only makes sense if there are positive externalities from rail that the market was not accounting for (or if the horizon of the company was too short-term, but I don’t get that feeling). These externalities all stem from rail being a substitute to other forms of transport, namely road transport. This is covered in detail in this article by Andrew Gawith.

A list of the potential positive impacts are:

  1. Rail has lower carbon emissions,
  2. Industry has already sunk infrastructure around rail lines (namely dairy) so it allows them to increase capacity,
  3. Rail is less congested than the roads,
  4. Network effects.

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Matt Nolan

Emissions trading scheme: The NZIER model

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NZIER has released a very interesting report on the ETS (emissions trading scheme) in New Zealand (see their reports page – April). In this report they find that the economic cost of the emissions trading scheme will be eight times the cost of the “government paying” for the scheme. Although this eases to 4-5 times the cost in the long-run (which is the cost we should be interested in if we believe climate change policy will continue indefinitely) this is still a significant cost.

Although I think this is an interesting and important point to raise, and that it will add greatly to the debate to climate change policies – I get the feeling the result is slightly exaggerated by some of the underlying assumptions. Here’s the areas that I think are important to revist:

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Matt Nolan

Financial transaction taxes and New Zealand

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Given my uncertainty about who to vote for the the next New Zealand general election I’ve been exploring registered political parties wikipedia pages. While looking I noticed that a number of smaller parties tended to favour a financial transactions tax (Progressives, Alliance, Democrats, and Direct Democracy). Looking at the parties websites, the only party I could find that mentioned the Financial Transaction tax was the Democrats.

The reasons they gave for the tax were:

  1. It will reduce businesses compliance costs,
  2. Reducing collection costs by having the tax administered through banks,
  3. It will increase everyones spending power as the tax rate will be lower than the GST rate but raise the same amount of revenue.

However, I’m not sure I entirely agree, here is why:

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