Matt Nolan

Why do we want to subsidise agriculture again?

/13 Comments/in , , /by

It sounds to me like there is some interest in NZ sbusidising its agricultural industries again (eg here and here).

Now, people may be scratching their head even after looking at those links trying to figure out what I’m talking about here.  No-one used the word subsidise after all and NZ has strong cross-party support for free trade.

But excluding agriculture from the ETS is subsidising the industry.  Why?  New Zealand has taken on a liability based on the carbon it produces.  By not charging the carbon producers on this basis the rest of the country is effectively subsidising the agricultural industry – we are being protectionist.

The counter claim is that “other countries aren’t applying charges to their agricultural industries”.  This is the same as saying “other countries are being protectionist and as a result so should we”.

This isn’t the attitude we had in the 80’s when we wanted to lead the world in terms of free trade – why do we have that attitude now?

Matt Nolan

Efficiency, equity, and tax

/16 Comments/in , /by

From Kiwiblog we hear the following statements from Bill English:

Low-income earners would have to be compensated if GST was increased as a result of the current tax review, Finance Minister Bill English says. …

“We don’t want to go down the route of raising taxes,” he said. “The Government has a strong preference not to increase taxes to close the deficit. We prefer more efficient taxes over higher taxes.”

Cool.  The government believes that it is fair to charge those on low incomes proportionally less (equity) and it would like the tax system to be efficient.  The only issue here is that there is a trade-off between these two elements of the tax system. People can approach Tax Shark: tax preparation services in Roseville to help them.

In terms of proportionality we can think of GST like a flat income tax – in both cases an individual will pay the same proportion of their lifetime income in tax eventually.  Offering rebates to people on low incomes is then the same in either case – it implies that people on a lower income pay proportionally less of their income.

How does this impact on efficiency?  Well, to raise the income to pay rebates the government has to increase tax rates on people with higher incomes, providing a disincentive to work.   Furthermore, there will be some range of income over which the rebate will be abated.  Depending on how the tax system is designed this implies that there will be very high “effective marginal tax rates” for some groups.  We see this with Working for Families where some households would get taxed at over 90% on any additional income they earn – providing a strong disincentive for these people to work additional hours, or do anything to earn additional income.  Finally, higher and more progressive tax rates give people with the ability to try and avoid tax the incentive to – another factor that hurts the efficiency of the tax system.

As a result, I agree with what the finance minister said, we need to look at efficiency and equity when making decisions.  It will be interesting to see exactly what trade-off the government, and society as a whole, is willing to agree upon.

goonix

In defence of the scalper

/11 Comments/in , /by

Events in high demand that have limited capacity sell out. See for example the Wellington Sevens or Toast Martinborough, which sold out in three minutes and thirteen minutes respectively. These events sell out as demand far outstrips supply at the price that the seller sets. In other words, many of those purchasing the tickets would be willing to pay much more than they actually do pay in order to attend said event.

High demand events such as these are the capitalist world’s version of queuing for basic food items in a communist shit-hole. When buyers are unable to adequately express their willingness to pay, due to blunt ‘one-for-all’ pricing and an inability of the seller to price discriminate, shortage ensues.

Enter the scalper. Scalpers are typically demonised by the media in New Zealand. However, scalpers simply allow buyers to reveal their true willingness to pay. When a scalper auctions off a ticket on Trademe, buyers are able to pay exactly what they value their attendance at said event at. What ensues is the efficient allocation of resources – scarce resources are allocated to those that value them highest – an admirable economic goal. Contrast this with the lottery that is the current ‘log-in and hope’ method of ticket allocation. Rather than be vilified, scalpers should be commended for their actions that facilitate the clearing of the market!

Indeed, a commentator at the NBR goes further, calling scalpers “unsung entrepreneurs”. I tend to agree with this sentiment.

Disclaimer: I have both scalped and been scalped. Both experiences were highly pleasurable and I encourage you all to try them.

Matt Nolan

The best reason for blogging

/12 Comments/in /by

A short post by Tyler Cowen at Marginal Revolution lays down what I think is the most important element of economics blogging.

People who learn economics through the blogosphere also receive feedback, especially if they sample dialogue across a number of blogs of differing perspectives.  The feedback comes from which arguments other people found convincing.  Do the points you wanted to hold firm on, or cede, correspond to the evolution of the dialogue?  This feedback is not as accurate as Rybka but it’s an ongoing test of your fluid intelligence and your ability to revise your opinion.Not many outsiders understand what a powerful learning mechanism the blogosphere has set in place.

For both the author, readers, and people that comment that blogging experience adds value, not just from the initial post, but from the conversation that takes place following the post.

I know my reasons for blogging are purely selfish.  I want people to tell me why I’m wrong about things, and how I can improve my understanding of issues.  Furthermore, I like the idea of having a historical record of my opinions – so if similar events happen in the future I can quickly jog my own memory.

Matt Nolan

It’s National’s turn for awful policy

/4 Comments/in , /by

So I see that pseudoephedrine based medication is being made prescription only, and possibly even banned in the “war against P”.  This policy has broad-based support in parliament, with both National and Labour supporting it.  And like all policies with broad based support it is bad policy.

Read more

Matt Nolan

Multipliers and New Zealand

/5 Comments/in , /by

In an interesting piece on Vox, Ethan Ilzetzki, Enrique G. Mendoza, and Carlos A. Vegh discuss their estimates of fiscal multipliers, and some of the reasons they differ between countries.  As multipliers are often used to justify the government spending during a recession, it would be useful to note down how their results related to a small open economy like New Zealand.

Read more