Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Friday, May 23, 2014

It Isn't Just about Greece: Domestic Politics, Transparency and Fiscal Gimmickry in Europe

Here is an interesting article by James Alt, David Dreyer Lassen and Joachim Wehner that might help explain why it's hard for governments to contend with the problem of tax planning (or base erosion, or however one might like to categorize the issue): governments themselves are inclined toward playing around with numbers, too, or what the authors call engaging in gimmickry. It's also another compelling argument for more transparency in governance coupled with an example of why governments are ambivalent about meeting that goal. Abstract:
This article analyzes the political origins of differences in adherence to the fiscal framework of the European Union (EU). It shows how incentives to use fiscal policy for electoral purposes and limited budget transparency at the national level, combined with the need to respond to fiscal rules at the supranational level, interact to systematically undermine the Economic and Monetary Union through the employment of fiscal gimmicks or creative accounting. It also explains in detail how national accounts were manipulated to produce electoral cycles that were under the radar of the EU budget surveillance system, and concludes with new perspectives on the changes to (and challenges for) euro area fiscal rules.
And here are some observations from the paper:
We show that: (1) despite reporting rules and an elaborate monitoring mechanism (including Eurostat), political incentives resulting from the electoral cycle and the state of the economy systematically undermined compliance with SGP fiscal rules; (2) under such rules, the scale of gimmickry depends on the degree of fiscal transparency in the domestic budget process; (3) incentives for fiscal gimmickry grew with the adoption of these fiscal rules, and tampering with accounting related to subsidies was not the only way in which countries evaded the SGP and Eurostat supervision; and (4) contrary to a good deal of contemporary discussion, non-compliance with the SGP was not 'all about Greece'. Greece was indeed an extreme case, the least transparent of the countries we study. However, the patterns we identify appear whether or not we include Greece in the data.

Countries with higher fiscal transparency generally observed SGP requirements for fiscal reporting, but occasionally violated the deficit limits.

When larger deficits loomed in an economic downturn, low-transparency countries also systematically circumvented the reporting rules using creative accounting.

Our result – that despite common supranational rules and monitoring, domestic institutions (budget transparency), politics (elections) and economic cycles (recessions) explain much of the variation in outcomes – reinforces the argument that 'the source of fiscal discipline is at the domestic level'.

...asymmetric information in an economic union is not only of academic interest, but has serious, real-world consequences for sustaining co-operation among national governments.

...Why would governments choose to misrepresent the state of their public finances? Euro member countries generally face three audiences: domestic voters, bond markets and the EU itself. Conceptually, countries projecting deficits or debt levels that violate the SGP rules can – for a given level of budget transparency – do three things. Each involves a different trade-off. First, they can observe the fiscal rules and make real adjustments to tax and expenditure levels, which will placate bond markets and Eurostat, but will be costly if the resulting policies are unpopular with voters at the national level. Secondly, they can forego fiscal consolidation, break the rules outright, and post deficits and debts in excess of SGP thresholds. This also can come at a price. Greece's entry into the common currency was delayed due to too-high deficits and, after the introduction of the euro, the system had penalties that made it potentially costly for countries to violate the rules. Thirdly, countries can resort to gimmickry, leaving real outcomes (especially spending) unchanged.8 Voters are unharmed in the short run, and gimmicks fool bond markets and supranational authorities to the extent they are undetected. Here the trade-off is intertemporal: if undetected, gimmickry keeps governments on good terms with everyone in the present, but may entail considerable costs, if deficits and debts later accumulate, in the form of high bond yields and even political unrest. Strategic choice could involve more than one of these avenues for action.

...If countries face costly constraints – either politically, from voters, or economically, from supranational fiscal rules or markets – why would countries not simply reduce transparency in order to facilitate fiscal gimmickry? They could, but making governance structures less transparent is visible, carries substantial reputational costs and, in our context, is penalized by bond markets.

...how can we make gimmickry observable and quantified, when the point of misrepresenting fiscal quantities is to avoid detection? We next show how gimmickry can be inferred from traces left in the national accounts, even after Eurostat scrutiny.

...One measure of gimmickry that is reasonably well known to practitioners is the stock-flow adjustment (SFA). The SFA is a statistical residual, an accounting item defined to reconcile the difference between a change in a government's debt (the total face value of the 'debt-like' or 'fixed' claims held against it) and budget deficit (the excess of spending over revenue)

...shares and other equity' transactions become gimmicks when, for instance, payments to cover recurring losses by a state-owned company are treated as equity purchases instead of current transfers.

...A government's electoral incentives are captured by years left in its term of office, ending in zero in the election year: there should be more gimmickry when fewer years are left

...Panel A clearly reveals an electoral cycle in gimmicks which is conditional on transparency. But increasing transparency reduces or eliminates the electoral cycle.
... Appendix 8 presents estimates with different measurements and coding of rules, transparency and other variables, varied samples and including a lagged dependent variable. Those tests qualitatively support our main results: the presence of an electoral cycle in gimmicks, more pressure from hard times and recourse to gimmicks exacerbated by rules – all of which are conditional on limited transparency.
Moreover, supranational fiscal rules that are intended to sustain co-operation instead exacerbate incentives for national governments to manipulate reported data rather than fix fiscal policy.

These are systematic tendencies, rather than the actions of any single country. Budget process transparency can reduce the incentives to manipulate, even those that would otherwise intensify in times of economic stress. Warnings that have been raised in policy and research papers since the early 1990s about the risks of moral hazard in economic policy making for countries in economic unions remain a concern.
 The following observation meshes with other work on the tendency of governments (such as here and here and here) to deficit-finance more generally:
In democracies, even advanced ones, politicians' incentives to employ gimmicks get stronger as elections approach.
And finally the punchline:
...The results show that Greece was not a special case; rather, it was the extreme case of a general, and comprehensible, pattern.
The appendices contain rich details and references.

Monday, May 5, 2014

Ireland To Analyse Tax System's Impact on Developing Nations

This is a story to watch: Ireland is going to "review the impact its tax system may have on the economies of developing countries" with a "spillover analysis" research project that "will be conducted by consultants and overseen by a steering group consisting of officials from the Finance and Foreign Affairs Departments."

This is a fascinating development. I have long argued that tax competition is as much or more a supply side phenomenon as a demand side one, that is, it is nonsense to tell developing countries to lay off the tax incentives and get serious about taxing multinationals without looking at those MNC's home countries that are not effectively taxing these flagship companies and are therefore sending them out into the world looking for the best tax deals they can find. It seems patently obvious that anyone who is thinking about the connection between taxation and development really has to look at taxation as a globally integrated system even though it's more or less a Hobbesian war of all against all when it comes to setting national tax policy.

As a result, Ireland's request for research proposals is of great interest. From the story linked above:
The Government has published a request for Proposal/Tender outlining its aims and asking that prospective consultants provide details of suitable methodologies for their work. A public consultation document has also been released, and invites interested parties to make submissions. The initiative forms part of a broader effort to clarify Ireland's approach to international corporate tax issues. ... Ireland is further pledged to support such countries in raising domestic tax revenues in an efficient way, to promote good governance and equitable development, and enable them to eventually exist independently from official development assistance. The Department has also described the spillover analysis as a response to calls from the Group of 20 nations and civil society groups for all countries to be aware of these issues when formulating their own tax policy.
I look forward to watching this unfold.

Monday, April 28, 2014

Report on outsourcing public services to for-profit corporations

I've expressed doubts before about whether it makes sense to turn to private companies to provide public goods, but I missed this paper when it was published last December. Introduction:
Eager for quick cash, state and local governments across America have for decades handed over control of critical public services and assets to corporations that promise to handle them better, faster and cheaper. Unfortunately for taxpayers, not only has outsourcing these services failed to keep this promise, but too often it undermines transparency, accountability, shared prosperity and competition – the underpinnings of democracy itself. As state legislatures soon reconvene, policy makers likely will consider more outsourcing proposals. Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations serves as a cautionary tale for lawmakers and taxpayers alike. 
Too often, outsourcing means taxpayers have very little say over how tax dollars are spent and no say on actions taken by private companies that control our public services. Outsourcing means taxpayers cannot vote out executives who make decisions that hurt public health and safety. Outsourcing means taxpayers are contractually stuck with a monopoly run by a single corporation – and those contracts often last decades. And outsourcing too often means a race to the bottom for the local economy, as wages and benefits fall while corporate profits rise. 
This report highlights the failed experiences of cities and states across the country that recently experimented with outsourcing in a variety of sectors. Organized by failures in transparency, accountability, shared prosperity and competition, these stories will show how hastily and ill- conceived outsourcing deals fail to protect taxpayers and the public interest. The last section will provide recommendations of responsible contracting practices, including implementation of ITPI’s Taxpayer Empowerment Agenda, which can mitigate the risks of outsourcing and ensure that public dollars are not blindly funneled into corporate coffers, but used to further a communities best interest.

Bartering services is about desperation in the face of labor market failure

Kevin Roose published The Sharing Economy Isn’t About Trust, It’s About Desperation in NY Magazine last week, in response to the Wired Story on How Airbnb and Lyft Finally Got Americans to Trust Each Other. Roose says not so fast:
[T]he sharing economy has succeeded in large part because the real economy has been struggling. A huge precondition for the sharing economy has been a depressed labor market, in which lots of people are trying to fill holes in their income by monetizing their stuff and their labor in creative ways.
He takes a look at labor's share of economic growth and provides a couple of alarming charts...

how many full-time jobs have been replaced by part-time jobs since the recession of 2008:

what's happened to real wages:


Roose concludes:
A narrative about labor-market weakness isn't as uplifting as one about strangers learning to trust enough other with the help of ride-sharing apps. But it's a necessary piece of the puzzle. Tools that help people trust in the kindness of strangers might be the thing pushing hesitant sharing-economy participants over the threshold to adoption. But what's getting them to the threshold in the first place is a damaged economy, and harmful public policy that has forced millions of people to look to odd jobs for sustenance.

Thursday, October 17, 2013

Measuring Corporate Tax Incidence: Update from the Joint Committee on Tax

The JCT released a report yesterday laying out its new method for measuring corporate tax incidence, Modeling The Distribution Of Taxes On Business Income (JCX-14-13).  The paper begins with a nice summary of the literature to date, and lays out the JCT's decision to assume that in the short run the incidence of corporate tax is fully on capital owners but in the long run (assumed to be reached by the end of a ten year analysis period), owners can shift 25% of the tax to domestic labor. Current Treasury practice assumes an 82/18 split. JCT explains its methodology and provides "illustrative examples", so the report is worth reading in full, but here are a few excerpts of note:
The Joint Committee staff has refrained from estimating the distribution of changes to the taxation of corporate income.... Past decisions not to estimate the distribution of taxes on corporations and passthrough entities were the result both of uncertainties among economists regarding the appropriate incidence of business taxes and to data limitations which made it impractical to distribute such taxes in the timeframe necessary to fit the legislative schedule. However, the economic literature has continued to advance. The Joint Committee staff believes that public finance economists now have a better understanding of, and can more appropriately measure, the incidence of taxes on business income. ... In addition, more detailed data and faster computing speeds help make timely completion of such distributional effects more feasible. 
...The debate over the incidence of corporate income taxes is ongoing, with a range of estimates on the precise breakdown depending on the assumptions of underlying models. Nevertheless, the existing research has arrived on two clear points of consensus. One is that the burden of the corporate income tax falls largely on domestic individuals, and therefore the corporate income tax does impact the well-being of these individuals. The second is that the burden of corporate income taxes is not borne entirely by capital owners, and is instead shared between capital owners and labor with the share borne by each being the subject of ongoing debate. 
...In the very short run, the incidence of business tax changes should fall entirely on the holders of the existing capital stock and bond holders. ... [I]n the long run owners of domestic capital are more easily able to escape some of the burden of the tax so business taxes are at least partially passed on to labor. ... 
The new methods ... reflect the current understanding in the economics profession that domestic individuals ultimately bear the majority of the burden of these taxes. Given the general economic consensus that these taxes should be distributed to individuals, the Joint Committee staff believes that estimating the distribution is appropriate. In the short run the new method distributes 100 percent of both types of taxes to owners of capital. In the long run it distributes 75 percent of corporate income taxes and 95 percent of the taxes attributable to passthrough business income to owners of capital. 
A portion of capital’s share of the corporate tax burden is borne by international capital owners, so in both the short run and the long run the distribution of tax burdens borne by domestic owners of capital is less than the burden borne by all capital owners. The portion of the corporate income tax burden borne by foreign capital owners is not distributed to domestic individuals on tax distribution tables. The remainder of the tax burden that is not distributed to foreign and domestic capital owners is distributed to labor, reflecting the compensation adjustment that results from corporate income taxes reducing the after-tax revenue that each worker generates for his firm. 
Given no definitive economic literature on the duration of the short run, the Joint Committee staff generally assumes that the long run is reached by the end of the 10-year budget window. These distributions between capital and labor reflect the middle of the range of estimates for distributing business taxes in the economic literature. The Joint Committee staff will use the updated distribution methods in this report to estimate tax distributions for all future estimates of the distribution of Federal income taxes. The Joint Committee staff will continue to evaluate and refine this approach to be consistent with new research findings as they arise. 

Wednesday, May 1, 2013

Economist: It would be terrible if people stopped depending on their employers for their health care.

Casey Mulligan says if the law actually applies to Congress, look for it to be far too bountiful, in a Speenhamland kind of way (see also Polanyi). The state, it seems, must do all it can to avoid producing healthy shirkers amongst the general populace, even if that requires dispensing a certain amount of injustice. A sad commentary on both human flourishing and the rule of law, is it not?  Excerpts:
To promote economic efficiency and the goal of universal health coverage, perhaps members of Congress should not be required to enroll in the new insurance exchanges.
...Because members of Congress are accustomed to high-quality medical care provided to them through federal employee benefit programs, one might expect that they would push for top quality care to be delivered through the exchanges too.
...If the exchange plans were good enough, people who are rushing to find a job, and people considering leaving their job, would no longer have to see employment as their only means of obtaining top quality, subsidized coverage. As a result, some of those would work less (see the Congressional Budget Office on some of health reform’s work incentives, and a 1994 explanation from Alan Krueger and Uwe E. Reinhardt). 
...Although politically incorrect and perhaps unfair, allowing members of Congress to keep their federal employee coverage might be the best thing for universal coverage and reducing the impact of the Affordable Care Act on the federal budget. 

Monday, March 18, 2013

Rosenbloom on proven incentives to get offshore cash back home

David Rosenbloom has a great letter to the editor in Tax Notes today [gated], excerpts:
Recent press reports describe a large increase in January tax receipts as taxpayers shifted substantial amounts of income forward into 2012 in order to avoid the higher taxes anticipated for 2013. 
...We have been told, again and again, that there must be lower tax rates on accumulated foreign earnings in order to provide an appropriate incentive for U.S. multinational companies to repatriate the enormous sums they hold offshore.  
...It turns out that incentives can be created just as well by raising taxes as by lowering them
Who knew?
Nice. Empirical evidence that to get cash repatriated, the trick is to raise taxes with enough lead time for companies to move thing around. Best part: this process is totally repeatable next year.

Monday, February 4, 2013

No sugar industry sans big gov

From Tim Carney: 
Last fiscal year, Americans paid about 69.9 cents per pound of refined sugar. The world price was less than 27.8 cents. 
Why is that? Why, industrial policy/central planning of course: state-provided infrastructure, subsidies, import quotas, tariffs, etc. But according to the beneficiaries of all of this central planning, it's not all the planning.  It's global competition from mercenary states that don't have things like...wait for it....labor and environmental protections!
"Go down to Brazil," [anti-NAFTA sugar farmer James Dickson] says. "Check out the working conditions." Brazil's labor costs are much lower, and so are its environmental regulations. "They do stuff to their sugar we would never do."
Carney says not so fast, there's plenty of that to go around:
The federal government also made it possible for the industry to get cheap labor from the Bahamas and Jamaica. Through the British West Indies program, which was created during the Great Depression, "the United States government played a direct role in negotiating employment contracts for offshore laborers," explained Everglades historian David McCally. Uncle Sam even paid to ferry cane-cutters from the islands to Florida. 
The guest-worker program put in place exploitative pay levels and work rules. For its part, Florida helped the industry by making it difficult or even illegal for cane cutters to quit. One farmer, lobbying the USDA against allowing Puerto Rican cutters, explained his reason: "Labor transported from the Bahama Islands can be deported and sent home, if it does not work, which cannot be done in the instance of labor from domestic United States or Puerto Rico." 
All of this was the subject of a little known film called H2 Worker by Stephanie Black (who also produced Life and Debt, a must-see for anyone interested in development economics) which you should watch if you haven't yet, even though it is admittedly quite slow in parts.

Carney concludes:
Florida sugar cane is an industry literally built on big government, and growers know it will wither in a free market.
Not literally. But otherwise true enough.

Friday, December 14, 2012

Precedents for selling sovereignty

This is an interesting take on the Honduran charter cities (which I view as just a super-charged gated community or free zone), finding historical precedents in the longstanding and uncontroversial tradition of sales by states of parts of their territorial jurisdiction:
The first point is that international legal precedent affords us an abundance of examples in which states freely exchange sovereignty over territories for money. Most Americans will have heard of the Louisiana and the Alaska Purchases, of course, but there are also less well-known cases: Woodrow Wilson’s purchase of sovereignty over the Danish West Indies in 1917, for instance. Europeans may recall cases closer to home. Here one thinks of Prussia’s purchases of sovereignty over Lauenburg and Jade Bay. Last, but not least, there is Asia, where, among other cases, Britain recently concluded its ninety-nine-year lease for sovereignty over the New Territories and Kowloon extension in Hong Kong.
...The Honduran debate grows still more interesting when one considers its theoretical relevance to today’s highly indebted states. Should people, or rather their elected representatives, be able to treat parts of their state’s territory as assets in transactions?... Statesmen have often answered in the affirmative during the twentieth century; indeed, on occasion they have alienated their own territory as a path towards fiscal salvation ... without the direct majority consent of the people affected by the transfer. Nonetheless, all the transactions have been held to be perfectly valid in international law.
The author gives some more contemporary examples: one scholar has suggested that Greece could reduce its debt by selling jurisdiction over some of its islands; US "Special Operations Command" (I have no idea what that is) recently opined that jurisdiction was “a commodity driven by market-like forces” that will go to the “state, organization, corporation, tribe, gang, etc. that can best meet individual security, economic, and demographic interests.” He forgot to add, at the lowest cost, naturally. He concludes that there is plenty of precedent for states to buy jurisdiction and sovereign rights from the recognized “owners.” He concludes:
Whatever the orientation of Honduras and its court system in the twenty-first century, these precedents attest to the existence of a marketplace open to all. 
Thinking about statehood as a commodity with owners that can auction it off--disturbing, especially because what then are the humans. In particular, what then are the humans in the designated for-sale zone. Spoils of war capitalism?






Monday, November 5, 2012

The cost to Canadians of pension splitting

We had a lively discussion over Lisa Philipp's paper today, during which a question arose regarding the cost of pension splitting to the budget, i.e., how much does pension splitting cost as a matter of tax expenditure analysis?  Note for non-Canadian readers, the pension splitting issue is as follows: Canada has individual filing only, no joint filing.  But for various reasons, in 2007 Canada introduced what amounts to joint filing with respect to private pension income, i.e., one spouse can deduct and the other include up to half of an annual pension income stream (some restrictions apply)--this is not for a federal pension income but strictly for income generated from private retirement savings.  A ready answer to the TEA question was not immediately found, but I've since had a look at the Tax Expenditures and Evaluations 2011 Report, found the data and made this handy chart:



So we can see that pension income splitting created a $840 million hole in the budget in 2007 and it has increased since then to about $925 million.   In class someone pointed out that pension splitting rule incidentally increased the value of a related tax benefit, namely the pension income credit, i.e., the amount of pension income a taxpayer is allowed tax-free (currently $2,000).  Sure enough the TEA report explains in fn 39: "The introduction of pension income splitting in 2007 increases the number of individuals claiming the Pension Income Credit and thus increases the value of this tax expenditure (i.e. spouses who previously did not have pension income)".  Putting the two pension benefits together yields this:


So we can see the cost of the credit increased by about $110 million in 2007, dropped a bit in 2009 and by 2011 was again about $100 million higher than it was in 2006.  It therefore seems plausible to attribute about $100 million of the credit's cost to the pension splitting rule, bringing the total TEA cost of the latter to about a billion per year.

That is about 0.4% of the total annual budget (which is currently about $245 billion) or about 4% of the annual budgetary deficit (currently about $26 billion).  Not huge perhaps, but not to be dismissed as nothing, either, especially when we know there is scant policy here: this is a straight up tax giveaway for Canadians with private pensions, i.e., higher income retirees.  Political pandering?  A quick scan of the TEA list shows it is in the league, TEA cost-wise, of the working income tax benefit and the medical expense tax benefit.  I am now very curious how many Canadians share the pension splitting benefit, both alone and in comparison to other tax expenditures.  I don't know how to find that though, so will leave the discussion right here.

Sub-primal scream therapy

Let's get the week started off right.


"See, if you blame your parents, you see it's not your default."
"I just want this to end, I just want some, some..." "Foreclosure?"  "Augh!"

Wednesday, October 10, 2012

Elites call for higher taxes in France, stamp feet when their wish is actually granted

Its fascinating to me that elites will only accept high marginal tax rates for purposes of destruction, namely, war.  When it comes to building something, a marginal 75% tax rate on top incomes is seen as outrageous and out of the question-no sane person could support it.  Tax resistance is really anti-social in that way.

Friday, October 5, 2012

MRU lectures on development

From Marginal Revolution:
At MRUniversity we just released over 30 new videos on leading thinkers on development. We cover Amartya Sen (who gets three), Bela BelassaKarl Polanyi, Adam Smith, Paul Romer, William Easterly
 I'm glad to see Polanyi on the list, and right beside Adam Smith, precisely correct (though in their full listing the two are separated by Schumpeter and Gerschenkron, fair enough.  As to Easterly I am not as enthusiastic but I will watch it anyway.  Also on the list: Krugman, Stiglitz, Ostrom, Rodrik, Acemoglu, Banerjee, Collier, more.  Yes, the list is almost wholly male--only Ostrom, Anne Kreuger and Esther Duflo are included and all three are American (ok, Duflo is also French). Nevertheless it looks like a fascinating series.



Thursday, October 4, 2012

Trickle down government...wha??

I'm still scratching my head over this. So...is trickle down nonsense now? Or is it affirmed as solid doctrine, but bad if it involves government? Is it an argument that government should inure to the benefit of the top, whose contributions to society will have the effect of trickling government largesse down to the 47%? Or is it to say that government programs aimed at the top are no good because they will (or will not?) trickle down? I'm stumped.

Wednesday, October 3, 2012

Expensive to be poor: dental edition

From Propublica, a look at dental treatment for the poor.  First, medicaid pays so little that many dentists won't accept medicaid patients at all; second, when they do accept these patients, they exploit them ruthlessly to extract every possible dollar, either from medicaid or the patients themselves or both.  For those without access to dentists, the Romney plan (emergency room care for all) doesn't appear quite workable:

Not that many dentists actually accept Medicaid. There are some states where the reimbursement rates are so low that even the chains don't go there. Like in Florida, for example, the Medicaid rates are so low there that chains don't really even bother. So children end up going to the emergency room because they have a toothache and there's nothing else they can do. They end up in hospitals to treat a tooth. 
There was a famous case in Maryland where a 10-year-old boy had a toothache and it was abscessed and he ended up dying because he didn't have a dentist.
But for those lucky enough to find a dentist who will take them on, the situation seems only marginally better: instead of dying, you get this:


We looked at two of the larger [dental] chains, and found evidence that these companies were putting pressure on their dentists to produce at certain revenue targets, thus encouraging them to do procedures that may have been unnecessary.
... One of the chains focused on kids on Medicaid, and the reimbursement rates for Medicaid are pretty low. So in order to get a lot of revenue from these patients they were doing things like taking x-rays that were not needed, or putting stainless steel crowns instead of fillings on their teeth. They could make twice as much money from Medicaid on these crowns versus just putting a filling on a tooth. Kids were getting treatments that they really didn't need.
...We had one example of an 87-year-old woman who had already been to the dentist and she went in to have two teeth pulled, thinking it would be cheaper at [New York-based] Aspen Dental. Instead they looked at her mouth and they came up with a treatment plan that was going to cost $8,000. They convinced her though hard-sell tactics to borrow that money through a credit card, and something like $2,000 of that was just to clean her teeth. (Aspen Dental's response is here.)
How do these dentists sleep at night?  Well, they have big loans to pay off, you see:

These days, when dentists get out of dental school, they often owe anywhere between $200,000 and $300,000 dollars. Dental school is actually more expensive than medical school. So they come out with these huge debts, in a lot of cases they can't really afford to start their own practice. 
These dental chains hire people, a lot of the time right out of dental school, and they pay fairly decent salaries and they have a bonus system where the more work you do on a patient the more you get paid. That's true for a private dentist as well, but the difference is that these companies are owned by private equity firms, and they're managed in a different way. You have people who are not dentists coming up with a business plan that's based on metrics. They try to get new patients in who haven't been to the dentist in a while, and they've already calculated how much revenue the average new patient should generate. 
If you happen to go in and you don't really have anything wrong with your mouth and you're a new patient you're not fitting the model. That creates pressure for the dentists to find things that are 'wrong.'
The report goes on to show that the problems are mostly undetected because there is insufficient oversight.  A scholar who works on corruption in governance once told me that the recipe for corruption is greed plus opportunity.  You can't stop greed, he said--that's human nature.  But society has got to find ways to curb opportunity.  That's after all one of the main reasons to form a society at all--namely, to curb the human animal's propensity to exploit and destroy one another for personal gain.  For more on this issue, you can watch "Dollars and Dentists" at PBS.

Sunday, September 30, 2012

Underground Economy in Canada, 1992-2009

Interesting stats, suggesting that the underground economy is not currently growing in Canada.  The CRA is careful to say that the UE is not an estimate of the tax gap, but CRA will look at these stats in light of the need to ensure everyone is "paying a fair share."  I'm only aware of an official statement of a "tax gap" by the U.S. and U.K.   

Tuesday, September 18, 2012

Private vs Public Healthcare Systems

Here is an interesting paper on private vs public health care systems in low- and middle-income countries, published earlier this year in PLOS Medicine, an open-access medical journal, in which the authors find that private systems don't deliver better efficiency, accountability or medical effectiveness in comparison to public systems.  But they might be faster and nicer to you in a private care system.  From the paper:
Introduction
Private sector healthcare delivery in low- and middle-income countries is sometimes argued to be more efficient, accountable, and sustainable than public sector delivery. Conversely, the public sector is often regarded as providing more equitable and evidence-based care. We performed a systematic review of research studies investigating the performance of private and public sector delivery in low- and middle-income countries. 
Methods and Findings
...Comparative cohort and cross-sectional studies suggested that providers in the private sector more frequently violated medical standards of practice and had poorer patient outcomes, but had greater reported timeliness and hospitality to patients. Reported efficiency tended to be lower in the private than in the public sector, resulting in part from perverse incentives for unnecessary testing and treatment. Public sector services experienced more limited availability of equipment, medications, and trained healthcare workers. When the definition of “private sector” included unlicensed and uncertified providers such as drug shop owners, most patients appeared to access care in the private sector; however, when unlicensed healthcare providers were excluded from the analysis, the majority of people accessed public sector care. “Competitive dynamics” for funding appeared between the two sectors, such that public funds and personnel were redirected to private sector development, followed by reductions in public sector service budgets and staff. 
Conclusions
Studies evaluated in this systematic review do not support the claim that the private sector is usually more efficient, accountable, or medically effective than the public sector; however, the public sector appears frequently to lack timeliness and hospitality towards patients.  
The incentive structure is interesting and echoes thoughts I've had before on privatizing water and waste disposal.  This study is not about high income countries, but the health care cost difference between the US and the rest of the high-income world suggests the findings might translate beyond the sample studied.

Monday, September 17, 2012

Dutch people must pay to throw it away

MR reports:
The Netherlands is rolling out some 6,000 smart garbage cans that can only be used when residents scan an RFID-enabled ID card.  Besides monitoring just how much trash someone disposes of, the cans will also measure and charge the user based on how much refuse they tossed.
Tyler Cowan responds: "I don't think this will do much to encourage littering or illegal garbage disposal.  It may encourage the purchase of less packaging and waste."  But why would this kind of tax not encourage avoidance and even evasion?  Is this a culture argument?



Do tax cuts lead to economic growth? Again, No.

Following on the report on state tax incentives, here is another report, this time from the Congressional Research Service, on the topic of taxes and economic growth.  David Leonhardt reports that the CRS finds that "changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth."  

Wednesday, September 12, 2012

Do state tax incentives increase economic growth? No.

Taxprof points to this paper by Kenneth Meier and Soledad Artiz on whether state tax incentives actually deliver the economic growth their advocates consistently promise.  Their answer is no:
"Contrary to expectations, business taxation shows a significant positive relationship with the growth rate of GSP, implying that lowering business taxes may actually be harmful to the overall state economy. ... 
Rather than boosting the economy as expected, in reality these policies have been associated with a decrease in the growth rate of GSP and resultantly economic decline. Likely, although these policies bring in businesses, these businesses are not generating growth. This could also stem from the fact that a decrease in taxation limits the state’s ability to provide public services: a necessary component of a strong business climate. Overall, the most conservative interpretation of these results is that decreasing business taxes will not generate an increase in GSP."
Yet I don't expect massive changes in tax policy, because as the authors state, tax incentives = economic growth is a matter of faith:

The belief that tax rates affect business decisions, which in turn influence economic growth, is virtually universal among state politicians...
Although the theoretical support for a negative relationship between business taxation and economic development seems clear, few empirical studies have documented this relationship... 
Even though a negative relationship between business taxation and economic development is theoretically expected, empirically this relationship is still unknown.
There are thirty pages of appendix in the article, but somehow I doubt the data will alter the politics.