Friday, May 19, 2006

Three interesting links

I enjoyed Laura Miller on Baruch Spinoza, Jason Soon on road pricing & Joshua Gans on R&D.

(i) This nice article on the philosopher’s philosopher Baruch Spinoza. Ideas reviled and rejected but the 'athiest Jew' curiously respected.

(ii) A useful post on the case for road pricing rather than increasing road supplies by Jason Soon at Catallaxy. Many of the discussants focus on the political feasibility of pricing. An interesting related line of enquiry links road supply decisions with efficient pricing so its not really an either/or issue. For example if there are constant returns to investment in road infrastructure, and you are making a profit out of efficiently-priced roads, they should be expanded. This used to once be considered abstract theory but with comprehensive electronic road pricing it might become a practical proposal. Of course if you don’t have efficient pricing you will spend excessively on roads to mop up the congestion.

I am a strong supporter of comprehensive pricing of roads at short-run marginal cost. But I agree with those who recognise the political constraints in doing so. You can improve the acceptability of pricing if you offer people alternatives - for example, the chance to drive in an uncongested priced lane or a congested unpriced lane. Also improve acceptability if tolls are spent on visible public goods relevant to those affected by the tolls. And finally improved acceptability arises if you make it clear that tolls will result in taxes being cut elsewhere so that pricing is revenue neutral.

By the way, charges on roads yield a double dividend - they raise revenue and clean up a congestion externality. They are a better idea than relying on gambling taxes which are highly regressive and which rely on the social evil of problem gambling that destroys the lives of so many working people. Problem gambling is very much supply-determined (no venues, much fewer problems) so a swap from relying on poker machine taxes to congestion charges advances community welfare.

(iii) An intriguing post by Joshua Gans on a disappointingly inconclusive report by the Productivity Commission on the impact of R&D. There is nothing wrong with the report itself – it seems to be an honest piece of econometrics and that is what was sought – but doesn’t seem to involve much creativity in thinking through the basic ideas. Joshua quite rightly emphasizes the important issue of borrowing or leeching technology from overseas.

Australia faces a portfolio problem in allocating effort between various R&D priorities and leeching. We need to do our own R&D in specific Australian areas (agriculture, minerals industry, environmental management) and I suspect that a more general R&D effort helps us to more effectively leech. But apart from that – we are a small open economy and we should be able to leech a lot. Universities and groups such as the CSIRO I hope understand that.


conrad said...

I still don't understand why you think pokies are regressive comparative to things like road charges.

Am I incorrect in thinking that the number of pokies is simply going to reach a limit controlled by regulation and not demand, and that demand is simply going to be a function of how many there are ? In addition the return on pokies is going to be the same to the user, no matter what the tax rate, whereas the higher taxes inevitably affect the probably richer owner. Thus whilst pokies are regressive I don't see why taxes on them are, unless the government deliberately allows huge amounts of them so that it can collect more tax.

Alternatively, charges on roads are undoubtedly regressive in countries like Australia because the rich(er) people tend to live closer to the city centre and their work places than the poorer people. Thus, if you are poor you basically have to pay these charges and the charges are going to be higher because you need to use the roads more.

hc said...

Pokie playing is supply-determined and is overwhelmingly a blue-collar activity. In Melbourne metro its impact is overwhelmingly in the poorest parts of the city where most of the machines are located. This is also where problem gambling issues are concentrated. The taxes on pokie earnings fall on these people.

I agree road pricing probably a bit regressive. Those 'tolled=off' roads likely to be poorer and those making long-distance journeys from city perimeter are hit by tolls. But those who actually end up paying the tolls are likely to be those with a high value of time - the wealthier. My guess - regressive but less so than pokies.

conrad said...

Sorry if I'm really missing the point, but the more I think about it, the more I think the _tax_ on pokies is a not regressive -- quite the opposite. You can see by example.

Lets say I buy a pokie machine for $100. I hope to get a 10% return on my investment. If I have no tax on it, this means I get $10 after (no) tax.

Now, lets say the government really doesn't like gambling, so it puts the tax on gambling profits to 60%.

Instead of getting $10, not I get $4, so my after tax return is only 4%.

4% return isn't very thrilling to a risk taker like myself, so I am less likely investment in the poker machine with the tax than without.

Thus there are less poker machines in the world (because they are not worth investing in) and poor people subsequently lose less money.

Is this the correct logic ?

hc said...

These taxes are levied con the losses made by gamblers. Roughly 1/3 of losses go to the government. The losses are mainly incurred by people on low incomes so low income people pay the bulk of the gambling tax take.

Patrick said...

Um, who pays the tax on pokies again? The owners??????????????????????????????

So why is tobacco so expensive? Aren't the sellers just selflessly absorbing the tax?

'The more I think' - no really, do think, it is good for you.

A tax on pokies is regressive because only poor people actually pay it - usually the poorest - does that sound regressive to you?

Whereas HC is quite right that rich people will line up to pay a road tax of the sort described, which anyway becomes little more (in that form) than a service - it would not even meet the Constitutional definition of a 'tax'!