Month: October 2009

Economics and Psychology Event November 6th

On November 6th, we will hold a one-day session on the interaction of Economics and Psychology. Full details of this are here. All are welcome. There is no registration process but perhaps email emma.barron@ucd.ie to confirm attendance.

The current literatures in areas such as intertemporal choice, well-being, emotional decision making, experimental economics, identity, risky choice, neuroeconomics, and related areas are changing modern economics entirely and increasingly behavioural economics is being debated in core policy discussions, particularly in areas such as taxation and pensions. This session and previous sessions have attempted to gather people working in this area in Ireland and are complementary to the wider international conference on economics and psychology that takes place every year.

Speakers for the day include Professor Arie Kapteyn, who is a pioneer in the use of subjective measures in economics and, among many other things in a very distinguished career, founded CentER in Tilburg and is currently head of the Labour and Population Division at RAND. The current head of CentER, Professor Marcel Das will also present on the MESS and LISS projects, two of the largest social science projects in the world that are bringing economics and psychology together in a way that is dramatically expanding the data and measures available for researchers to look at complex economic questions.

There will also be a number of speakers from UCD, ESRI, Maynooth, UL and from other national institutions. While the day is focused around the talks, we hope that there will be a lot of discussion about the implications of behavioural economics for public policy and for regulation. I have posted previously on the topic of whether policy-makers should care about behavioural economics. Hopefully we can talk further about that on the day.

Some of the speakers may be wondering why there are 60,000 people outside the venue protesting. I have told them that behavioural economics is controversial in Ireland and to expect trouble.

Subramanian and Williamson on capital flows

International capital flows have had a destabilising effect in several countries in recent years, including Ireland. Arvind Subramanian and John Williamson have an interesting piece on the new Brazilian tax on capital inflows, here.

NAMA and competitiveness

John McManus has an article today in which he points out that NAMA has the potential to raise the prices of legal and other professional fees by boosting demand for the providers of those services. He also points out that this will be bad for competitiveness. (And, one might add, for the fraying social fabric of this country.)

I would be interested to know how big such an effect might be: in other words, how many professionals in various categories will NAMA hire, relative to market supply?

I agree with McManus when he says that the state should limit the damage, by capping the fees it pays to such people. But it is hard to see how it could actually succeed in ‘driving down professional fees via NAMA’ through such a strategy, since according to McManus NAMA is adding to total demand in the sector.

David Begg on Fiscal Policy and Deflation

In the Monday edition of the Irish Times, David Begg lays out his analysis: you can read it here. It is in line with the interpretation put forward by ICTU in its recent “There is Still a Better, Fairer Way” report.

Below I make some comments on specific points articulated in the article; I will return to the broader analysis in the near future.

Comment 1:  Mr Begg has persistently made the analogy to Japan, arguing that overly-aggressive fiscal retrenchment could “impart a severe deflationary shock to the economy which could precipitate a prolonged slump.”  As has been persistently pointed out,  this analagy is not appropriate:  Japanese-style deflation is not possible for an individual member of a monetary union, since declines in the price level are ultimately self-correcting through a competitiveness gain from cumulative real depreciation.

Comment 2:  Mr Begg suggests that a 50 percent tax rate on high earners (as has been announced in the UK) could be copied here.   Putting together the various levies on top of the statutory income tax rate means that a top rate of effective tax in excess of 50 percent already applies and kicks in at a relatively modest income level.  (See the graph in my note here.)

Comment 3:  Mr Begg notes that there may be €1.8 billion in outstanding uncollected taxes.  I am not familiar with the source of this number – I wonder how much of it may be explained by business enterprises that have failed (with little chance of recovery of the outstanding taxes), rather than by tax evaders.

Overview on Fiscal Situation

My TCD colleague John O’Hagan provides a wide-ranging analysis of the fiscal and economic situation in today’s Sunday Business Post: you can read it here.