Here‘s a paper on “Containing Systemic Risk” which I submitted to the European Parliament’s Monetary and Economic Affairs Committee in relation to its Monetary Dialogue with ECB President Trichet.
I’m one of a panel of “experts” that briefs the committee. Here‘s a link to the page that contains all the expert papers for this year. Click on 7.12.09 and you’ll see papers by other economists on the topic of systemic risk as well as some interesting papers on the Monetary Exit Strategies.
Writing in today’s Irish Times about the upcoming budget, Pat McArdle states
the first thing to do is to try to disentangle the two crises that confront us, namely, the bailout of the banking system and the budget. The two are inextricably but incorrectly linked in the public mind.
He is highly critical of people who suggest there is any such link and the piece includes the now-standard McArdle swipe at academics who “should know better.”
McArdle’s principle objection is to those who see any link between the €4 billion injected into Anglo Irish Bank this year (and perhaps a similar amount next year) and the €4 billion in tax and spending adjustments scheduled for the upcoming budget.
I’m almost reluctant to write about this topic because of the level of hysteria that it provokes. Still, we cannot deny that a national public sector strike is an important topic worthy of debate on this blog.
My overall reaction is that the debate about public sector pay is descending, perhaps predictably, into a damaging battle between vested interests. There is much to dislike on both sides of the debate.
William Easterly reports on a plan to help a small but symbolically important part of the Irish economy. I particularly liked the fourth suggestion.
When addressing the issue of raising income taxes, two objections tend to come up. The first is that the combined marginal tax rate (including PRSI and levies) is already up to 54% (see page 161 of the Commission on Taxation Report) and this marginal tax rate kicks in at fairly low incomes. Further increases in this marginal tax rate are likely to trigger increased tax avoidance and can also have negative side effects in terms of work incentives.
The second objection is that we don’t want to raise taxes on low earners because they already don’t make much money and we have to be careful about not creating poverty traps in which people are better off earning unemployment benefit than working (Suzanne Kelly’s Irish Times article on this presented some interesting calculations.)
One way to address these objections is to introduce a flax tax with a large exemption limit. This would keep the lower paid out of the tax net and keep marginal tax rates from reaching dangerously high levels. But this approach could raise additional revenue, essentially because it would abolish the 20% tax band.