Tuesday, May 28, 2013

GST And Inflation Part IV: Some Theory

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.

Monday, May 27, 2013

GST And Inflation Part III: The Economists’ Lament

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?

Thursday, May 23, 2013

Independent Fiscal Assessment Redux

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?

GST And Inflation: Part II

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 Smart

A 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.

April 2013 Consumer Prices: Edging Up

Inflation continued to edge up in April, this time almost entirely due to food prices (log annual and monthly changes; 2000=100):


Wednesday, May 22, 2013

March 2013 Employment

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.

GST And Inflation

My rant for the day.

Thursday, May 16, 2013

Managing Natural Resources

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.

1Q 2013 National Accounts: Braking Hard

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.

Wednesday, May 15, 2013

Isolation And Governance

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. Guimaraes

Motivated 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
Filipe R. Campante, Quoc-Anh Do

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.

I don’t need to spell it out, do I?

Technical Notes

  1. 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

  2. Campante, Filipe R. and Quoc-Anh Do, "Isolated Capital Cities, Accountability and Corruption: Evidence from US States", NBER Working Paper No. 19027, May 2013

Monday, May 13, 2013

March 2013 Monetary Conditions

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):


Simple Nostrums For Complex Interactions: Details Matter

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

A 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.

Saturday, May 11, 2013

Global Energy 25 Years From Now

This will probably be useful to somebody (abstract):

The Global Energy Outlook
Richard G. Newell, Stuart Iler

We explore the principal trends that are shaping the future landscape of energy supply, demand, and trade. We take a long-term view, assessing trends on the time scale of a generation by looking 25 years into the past, taking stock of the current situation, and projecting 25 years into the future. We view these market, technology, and policy trends at a global scale, as well as assess the key regional dynamics that are substantially altering the energy scene. The shift from West to East in the locus of energy growth and the turnaround of North American gas and oil production are the most pronounced of these currents. Key uncertainties include the strength of economic and population growth in emerging economies, the stringency of future actions to reduce carbon emissions, the magnitude of unconventional natural gas and oil development in non-OPEC countries, and the stability of OPEC oil supplies.

Friday, May 10, 2013

March 2013 Industrial Production

The latest IPI data shows production growth bouncing back (log annual and monthly changes; seasonally adjusted; 2000=100):



BNM Watch: OPR Stays At 3.00%

Ho-hum (excerpt)

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global growth momentum has continued to be modest. Latest economic data suggests that the recovery is uneven while downside risks to global growth prospects remain…

…In the Malaysian economy, while the external sector is affected by global developments, domestic demand has continued to provide support to growth…

…Inflation remained low at 1.5% in the first quarter. While inflation is expected to continue to rise during the year, it is projected to remain modest…Nevertheless, given the modest global growth prospects, pressures from global commodity prices are likely to be contained…

The Truth And Nothing But Truth



After taking control of the Federal government after a controversial "fraud" victory , BN/UMNO Federal Government has already started imposing hardship on the poor Malaysian rakyat.

The above shows a tax of 16% being imposed (service tax - 10% and GST of 6%) on the rakyat.

Malaysians don't deserve this!!!! BUT the fault lies on some Malaysian voters who had been carried away by favors and goodies to vote for the "uncaring, corrupt and ineffective" BN/UMNO.

I linked to the site as a matter of course as it’s internet etiquette, but personally I wouldn’t recommend visiting – too many pop-ups and pop-unders.

March 2013 External Trade

The growth numbers look pretty bad, but truth be told, exports are just in a holding pattern (log annual and monthly changes; seasonally adjusted):


Exports fell an annual 3,2% in log terms in March, and 5.2% from February. Imports were a little better, expanding 6.4% from last year and shrinking 0.6% from February.

Monday, May 6, 2013

Singapore: Tax Evasion = Money Laundering

What with all the election news, how many caught this article on Singapore’s crackdown? (excerpt)

Banks in Singapore agonize over rich clients in tax evasion clampdown

The authorities are keen to ensure the city-state is not seen as a tax haven for the wealthy from Europe, China, Indonesia, Malaysia and elsewhere without dulling its allure as an oasis for the rich, replete with casinos, luxury properties and high-end boutiques and restaurants. More than 70 percent of Singapore's S$1.34 trillion ($1.08 trillion) in assets under management at the end of 2011 came from overseas, an MAS survey showed.

Back To Business

Now that the general election is over – pending, of course, the inevitable legal review – it’s time to get back to stuff that actually matters.

For the record, polling was peaceful, orderly and generally well conducted where I voted. The queues were a little long, especially for the higher numbered streams, but people mostly took this patiently in stride. EC officials kindly helped my mother into the station (she’s wheel-chair bound), jumping the queue in the process. That was a relief, especially in the mid-morning heat. Kudos to them.

I hope your election day was just as uneventful and peaceful, and I fervently pray it stays that way.

Thursday, May 2, 2013

GDP Deflator Inflation ≠ Consumer Inflation

I keep hearing some people talking about the GDP deflator as if its a measure of consumer inflation. That it’s a measure of inflation is indisputable – that it measures domestic consumer inflation is not.

In that respect, the consumer price index – which directly measures price changes of consumption goods and services – is a much better measure.