Wednesday, March 28, 2012

Policy and Regulation for Sale (by Francesc Trillas)

It is unfortunately frequent to receive news of corruption and collusion between business and politics in many countries. We run the risk of becoming accostumed to them. The treasurer of the Conservative Party in the UK had to resign because he was caught selling (at a high price) meetings with the Prime Minister and leader of his party. In Catalonia, several people were arrested in connection to allegations of collusion between government and firms to arrange concession contracts in the Vehicle Inspection sector. Daniel Montolio, Néstor Duch and myself wrote some time ago (in an article published last year in Revista de Economía Aplicada) about the propensity of this sector to corruption, but probably nobody paid attention (by the way, we approached the industry to ask for funds to continue our research on vehicle inspections, but got nowhere): "Given the very special nature of this industry, it is important to provide independent and objective quantitative assessments of the desirability of regulatory reforms. Consumers (car owners, not the overall population) devote a small proportion of their expenditure to vehicle inspections: in our sample units, about €30 for inspections that take place every one or two years, depending on the age of the vehicle. Therefore, inspection costs for consumers do not trigger the level of public awareness of, say, public utilities rates such as electricity or water. However, given their compulsory nature, vehicle inspections are a steady source of cash for firms operating in a sector in which demand is growing. We thus conjecture that firms have a far greater influence in policy design and implementation than consumers. Therefore, there is high potential for regulatory capture. The complexity of the interaction between firms and policy makers increases with the presence of multinational operators. How to design national or even (in decentralized countries like Spain) regional regulation to benefit consumers when some of potential firms are powerful multinationals is an important question"

Wednesday, March 21, 2012

Beckham's Law and fiscal crisis (by Pedja dell'Arno)

Spain has a level of taxation that is below most EU countries. One contributor to this low fiscal pressure is Beckham's Law, which is being phased out, but which since 2004 has allowed top foreign soccer players enjoy a flat 24% tax rate instead of the progressive rate applied to all other mortals. The effect of this tax privilege has been to attract and retain some of the best world soccer players and improve performance in European competitions for top Spanish teams (5 among the 16 best teams if we take, as a measure of performance, being qualified for the quarter finals of the Champions and Europa Leagues). A great empirical study on this by Kleven, Landais and Saez can be accessed here.
A clear example of the potential negative correlation between sports success and broader economic success.

Thursday, March 15, 2012

Top academic economists for a stronger social democracy (by Francesc Trillas)

In a document I am contributing to write for the Catalan Socialist Party and its Foundation (Fundació Rafael Campalans), on “The Economic Project of Social Democracy” I came across a substantial number of articles and books by top academic economists from the best universities working on the same topic. All of them have three things in common:
  1. They believe that the values of social democracy are the best hope for the social and economic organization of our societies.
  2. They think that it is necessary to update the application of these values to the needs of today’s globalized economies and, especially in Europe, to the current economic crisis.
  3. They think that economic research can make an important contribution to this debate.
Of all the references (which will be included in the first draft of the document when we are ready to circulate it), I would like to select three of them. One of them is the report “The Nordic Model” by a group of Scandinavian economists, among them Bengt Holmstrom, the specialist in the theory of the firm, who is the author of the chapter on the boundaries between the public and the private sector. The other is the book in French “Repenser l’État. Pour une social-démocratie de l’innovation” by Phillipe Aghion and Alexandra Roulet from Harvard University. They argue that there is an urgent need to go well beyond the Blairist third way in promoting much better market regulation and a deep fiscal reform to drastically reduce income inequality. And the third is also a book by top French economists, Camille Landais, Thomas Picketty and Emmanuel Saez, “Pour une Révolution Fiscale”. This book is associated to an excellent web page. Food for thought (and for action).

Sunday, March 4, 2012

The Darwin Economy (by Pedja dell’Arno)

Robert Frank has published an interesting book on The Darwin Economy. Not all competition is good, says the author. The same happens in the animal world. Some efforts to compete against members of the same species are detrimental for the species as a collective, especially in those cases where the competition is for positional goods.  This is the main idea of this interesting essay. The book also touches on the Coase theorem and  the role that income effects and transaction costs play in the theorem, and how libertarians and conservatives have hijacked a basically non-ideological but pragmatist character as Coase for their interests. The author also persuasively argues in favour of progressive consumption taxation. In general, Frank makes the case in favour of taxation, especially pigovian taxation, because this can increase revenues and encourage positive behaviour or refrain socially negative behavior. One potential criticism is that perhaps Frank does not deal with the serious attacks that Coase directed to Pigou in his essays. The book is full of messages against American libertarians (also against simplistic progressives, but more against libertarians).