I wonder how many people have figured this out?
If, as the reports say, GST will yield greater tax revenue than SST, that implies an increase in effective taxation. But all other things equal, greater taxation isn’t inflationary – it’s deflationary. At the very least, it’s dis-inflationary.
The title, in case you missed it, is in plural. It’s a common complaint in the profession, and something the comments to my posts on GST make very clear – many people simply don’t understand inflation.
It’s actually a pretty easy concept to understand. Why then does virtually every non-economist get it wrong?
I seem to be returning to this issue more and more often.
Australia has in the past year just established a Parliamentary Budget Office, charged with "providing independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of proposals."
Why can’t we have one?
I’m on a roll here (abstract; emphasis added):
The Economic Incidence of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience
Richard Miller Bird & Michael SmartA decade ago, several Canadian provinces replaced the retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on consumer prices in the reforming provinces. Consistent with theory, we find that the resulting effective tax rate changes were shifted forward to consumers in most sectors of the economy. The overall effect on tax-inclusive consumer prices was small, albeit perhaps somewhat regressive.
This needs some explanation – we’re looking at a very similar scenario in Malaysia that Canada has already gone through. To wit, replacing a sales tax with a value-added tax and at the same time changing the marginal tax rate.
Inflation continued to edge up in April, this time almost entirely due to food prices (log annual and monthly changes; 2000=100):
The employment situation in March remained pretty stable, neither too hot nor too cold (‘000):
As always, there’s lots of noise in the series, but the general tenor is of slower/negligible employment growth in March. The unadjusted employment number registers at 45k jobs created during the month.
I haven’t time to read the report, but via this Reuters article printed in The Star, comes another NGO looking at global issues of governance (excerpt):
The 2013 Resource Governance Index
The Resource Governance Index (RGI) measures the quality of governance in the oil, gas and mining sector of 58 countries. From highly ranked countries like Norway, the United Kingdom and Brazil to lowranking countries like Qatar, Turkmenistan and Myanmar, the Index identifies critical achievements and challenges in natural resource governance.
Growth in the last quarter of 2012 was shockingly fast. But for every action, etc. etc. Growth in 1Q2013 was shocking too, but in the opposite direction (log annual changes; log quarterly changes, SAAR):
The annual growth number fell from a revised 6.5% in 4Q2012 to 4.1% in 1Q2013 (4.0% in log terms). This was actually a little lower than forecast by my IPI based model – for once, it wasn’t being overly pessimistic – but is still respectable growth, and not bad compared to our regional peers.
I have to admit I read these twin papers with a smirk on my face (abstracts):
Isolated Capital Cities and Misgovernance: Theory and Evidence
Filipe R. Campante, Quoc-Anh Do, Bernardo V. GuimaraesMotivated by a novel stylized fact – countries with isolated capital cities display worse quality of governance – we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.
Isolated Capital Cities, Accountability and Corruption: Evidence from US States
We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability, and in contrast with the alternative hypothesis that it might forestall political capture. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms over state politics: newspaper coverage, voter knowledge and information, and turnout. We also find evidence against the capture hypothesis: isolated capitals are associated with more money in state-level campaigns. Finally, we show that isolation is linked with worse public good provision.
Filipe R. Campante, Quoc-Anh Do
I don’t need to spell it out, do I?
Technical Notes
Campante, Filipe R. and Quoc-Anh Do & Bernardo V. Guimaraes, "Isolated Capital Cities and Misgovernance: Theory and Evidence", NBER Working Paper No. 19028, May 2013
Campante, Filipe R. and Quoc-Anh Do, "Isolated Capital Cities, Accountability and Corruption: Evidence from US States", NBER Working Paper No. 19027, May 2013
Apropos of the Monetary Policy Committee Meeting last week, monetary conditions in Malaysia for 2013 up to March mirror developments in prices and incomes (log annual and monthly changes; seasonally adjusted):
I'm quoting more than I usually do, because there are quite a number of fallacies to be addressed here (excerpt):
Rising tides of currencies globally
By DATUK ALAN TONGA PACKET of nasi lemak (rice cooked in coconut milk) with a fried egg costs around RM2 nowadays. I remember getting a similar packet (and in bigger portion) at RM1 ten years ago. It is a 100% price appreciation in ten years! My friends and I were jokingly saying that nasi lemak would be a good investment tool if it can be kept for ten years...
…The global economies have been embarking on expansionary monetary policies since the financial crisis broke out in 2008. Central banks around the world are printing money to support their economies and increase exports, with the United States as the primary instigator.
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