Matt Nolan

Conceptual introduction to tax-benefit microsimulation

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I am currently writing up a few documents on slightly more technical ideas about income inequality.  For each one I also plan to do a presentation, and attach the presentation slides to this site (along with the document).

I delivered the first one a couple of weeks ago – however, as it wasn’t one that is of public interest I only gave it to a few close economists.  It was on microsimulation models and income analysis.  It was a high level conceptual piece, really just a literature review, but it will act as a start.  The document, and the slides.

This is a form of modelling used to try to understand tax-benefit policy, and the distribution of income, given the fact that people are inherently different!  If you are interested in how I justify the modelling technique with reference to methodology (there is a bit of a discussion of the Lucas Critique in there) you may like to look at the document, but I suspect most readers would find it boring and not particularly useful – which is understandable 🙂

The next one will be on income inequality indices.  I am already part of the way through it, the goal is to write up a bit of a history, build up the idea of thinking about “social welfare” and “need” in terms of these indices, discuss some axioms that we would presume should hold for them, then discuss the individual indices in detail.  Hopefully this will be a bit more exciting.

Matt Nolan

ICT, factor shares, employment, and inequality

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I am going to take you on a journey of a series of fortunate events, and at the end hopefully I have a point!  The journey is below the flap … Read more

Matt Nolan

Policy and heterogeneity: A point

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Via Geoff Simmons came this interesting post about new health policy in New Zealand.  This isn’t my area of expertise, but I found the post really insightful – I’d definitely recommend it as a read.

However, a small part of the post did spark my imagination, and will lead me to write on a loosely related, but important issue.

In the post, when talking about potential issues with the new scheme, the author says:

We hear echoes of the Bolger-led Government adoption of social capital in the late 1990s. Remember that? It placed social problems and their solution-generation with ‘communities’. There is a worthy role for this type of policy in a wider package, but it can also be used as a distancing policy to shield a government and the state from its responsibilities (e.g. on welfare benefits), deflecting the blame and responsibility for solutions to the level of communities.

This is a fair point, words like “community” and “opportunity” are often used by politicians on the right to avoid action.  However, politicians on the left are just as eager to push inappropriate policy at a national level by dismissing these claims.  In truth, the relative importance of “community”/”opportunity” as opposed to nationwide determination of policy depends on our assumption about how different people are – to whip out some jargon, we need an idea about how heterogeneous individuals are with regards to the issue we are looking at.

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Matt Nolan

Discussion Tuesday

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A double-barrelled one today.  Once again, remember that these are points for discussion – I am not saying I agree or disagree with them.

Other people both have more differences, and are more similar, to us than we assume they are when making day to day choices, judgements, and decisions.  Ultimately people are more complex than the rules we use to understand them.

To understand the individual we have to make assumptions.  Acknowledging these assumptions, their usefulness, and their limitations, is important.

Matt Nolan

Are we all confusing status competition and ‘inequality’: Short answer, yes

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The authors of the Spirit Level have done a piece on the relationship between inequality and negative outcomes here.

Now I’ve previously strongly disagreed with the Spirit Level here.  However, I feel that I can discuss this specific post separately – I feel that it is clear and more focused than the book.  I am still unhappy with this post, however I think they have picked the clearest and most fundamental of their arguments to discuss here.

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Matt Nolan

In defence of the RBNZ’s upcoming hike

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Although I no longer have the time to keep up with the literature on financial stability policy (and so am not commenting on it – this is due to my switch to detail income data analysis), I still spend a bunch of time looking at the national economy and monetary policy.

I see that a section of my work place thinks we need the RBNZ to be more hawkish than it is.  There are also many people who think lifting soon is madness.  I am not personally not in either camp – I actually think the Bank has got this right now!  The Bank’s decision to lift soon and get rates back to neutral does make sense given what they are facing, and that they are doing it the right way.

[As a disclaimer, I was more hawkish than the Bank during the crisis (I was wrong) – although my forecasts of economic variables were surprisingly accurate then, that was because their actions were more appropriate, not because I had any foresight … another indication of why forecast performance isn’t always the best judgment variable 😉 .  From late-2011 until the end of 2012 I was more dovish than the Bank was.  Now, I find their discussion consistent with my own narrative and models – including the discussion of the risk.  So it is hardly surprising I’m so willing to defend them 🙂 ]

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