By David Madden
March 26th, 2014Readers of the blog may be interested in a Vox piece by Tony Atkinson and Salvatore Morelli on the Chartbook of Economic Inequality. It provides a summary of changes in inequality for 25 countries (alas not including Ireland) over a 100 year period. If you follow the links you can get the data on an Excel basis or in chart format. The vox link is here http://www.voxeu.org/article/chartbook-economic-inequality.
The OECD’s unit working on the Base Erosion and Profit Shifting (BEPS) project have been releasing documents based on the points in the Action Plan published last year. The full set is here.
Yesterday, a discussion document for Action Point 1: Taxing the Digital Economy was published. It is a very wide-ranging document. One of the notable suggestions are the proposals to allow/force the greater taxation of companies selling digital products in their “market jurisdictions”. This primarily arises from the ability of such companies to circumvent the existing rules on permanent establishment because of the intangible nature of the product.
The proposal is not a move to formulary apportionment. The document puts forward proposals to alter the existing source principle of corporation tax to try and ensure that more/some of the profits earned by these companies are attributed to the country of their customers using changes to PE rules. Other proposals include the new concept of a “virtual” permanent establishment, the creation of a withholding tax on digital transactions and the use of consumption tax options.
There is a lot in the document and some extracts summarising the problems the OECD group are trying to tackle in this area are below the fold. Whether there will be any effective solutions by the end of the process remains to be seen.
The 2012 release of the Annual Business Survey of Economic Impact is available here.
The coverage is obviously not as broad as the various equivalent figures provided by the CSO. The Forfás survey is limited to “client” companies with ten employees or more but a benefit of the survey is that the indicators surveyed are decomposed by company ownership.
On the 28th of March at the Aviva conference centre, a conference looking at what’s next for Ireland will take place in the context of Ireland’s new economic governance rules. The programme is here. The conference is organised by the European Commission and the Dublin Chamber of Commerce.
By Liam Delaney
March 24th, 2014I have blogged before on the potential applications of behavioural economics to public policy in Ireland. A lot of attention has been given to policies that change individual behaviour in potentially welfare promoting directions (See Tim Harford’s summary of this in the FT). An interesting question is the implications of moving to a model of consumers with bounded rationality and self-control for regulation and competition policy. A number of recent documents in the UK and US are relevant for this.
This excellent FCA occasional paper examines the potential implications of behavioural economics for financial regulation. It should be noted that “nudging” is a subset of the policies that might follow behavioural market tests. Many of the potential policies discussed in this document are hard interventions rather than soft nudges. They also extend across regulators. For example, on page 45 they outline recent moves by Ofcom to ban autorenewal of internet contracts and OFT to ban certain types of gym membership contracts.
In some senses a more radical document by Barr, Mullainathan and Shafir from 2008 outlines a new approach to consumer regulation based partly on the notion of “sticky defaults” whereby firms would be required to default people into the most desirable option based on their characteristics and only move them if they make choices following being provided with clear information. Such models are discussed in relation to two markets fraught with behavioural bias and consumer exploitation, namely credit cards and mortgages. The document also sets out proposals for changing the incentives of brokers.
Far from the collection of isolated “nudges” that forms much of the public debate around behavioural economics, what has unfolded in recent years is a body of theoretical and empirical work that simply gives better predictions and foundations for regulation than what preceded. There are clearly many insights in this literature that have implications for Irish regulators and are worth debating further.
Examples of the applied questions raised by the recent literature include:
Should credit card variable and teaser rates be banned or at least taken out of the regular offers made to consumers?
Should mortgage providers be forced to disclose better deals available to their customers?
Should pay-day lenders be granted full access to the Irish market? If so, how do you regulate them?
Should autoenrolment proceed in Ireland, what provisions should be put in place so that companies do not exploit naïve consumers by charging fees well in excess of regular rates?
Do behavioural biases prevent annuities markets from functioning optimally?
Clearly, many of the above questions are more than just empirical questions or issues of economic theory. They also relate to political issues and wider issues of freedom of choice. Policies such as pension autoenrolment have proved quite popular as they are, in some sense, a win-win in encouraging savings among non-traditional savers and providing extra customers for financial providers. However many of the above policies are likely to be far more contested by interest groups and it will be good to have an open debate on their merits.
Notes:
A reading list from my research blog here.
A short blogpost I prepared summarising the FCA document with some other readings on regulatory and consumer exploitation issues.
Pete Lunn at ESRI has written about policy implications in a number of documents (see recent OECD review paper here).
By Philip Lane
March 23rd, 2014I got the chance to read this book over the last few days - it is definitely a “must read” and a major achievement. The Free Exchange blog is running a “book club” for this book - the various entries are here.
By Philip Lane
March 23rd, 2014A G20 priority for this year is to identify policies that can boost global growth. One priority area is to address barriers to the financing of infrastructure projects. The Reserve Bank of Australia’s annual conference was dedicated to this theme: the papers (including my own contribution) are available here.
This week’s edition of the Economist also has an article on this topic here.
By Liam Delaney
March 23rd, 2014Paper by Yvonne McCarthy and Kieran McQuinn on “attenuation bias” (i.e. tendency to underestimate) in recall of house prices.
A memo prepared in November 2008 by Merrill Lynch in advising the then government on the developing banking crisis has been released following an FOI request from Sinn Féin. The 45-page memo is here.
Some government statements issued around time include:
It is an interesting read but has anything been unearthed aside from further evidence that the scale of the banking bust was massively underestimated?
By Philip Lane
March 20th, 2014IFAC is recruiting.
Details here.
Pascal Saint-Amans restates the OECD intention to tackle double non-taxation in this follow-up piece to the taxation of MNCs in the Australian Financial Review.
“The current rules legally facilitate the location of the profit in non-tax jurisdictions. In other words you can develop schemes that can put your intangibles in Singapore or Switzerland or Luxembourg while there is no activity there. You can deduct your expenses in Australia. You can put your intangibles in Singapore – where it is not taxed. You can lend money to your subsidiaries across the world so that you can erase profit in all these countries because there is excessive interest, then you locate a treasury centre in Ireland for there is no tax either. At the end of the day there is no tax anywhere.”
By Liam Delaney
March 15th, 2014This New York Times article discusses a recent letter signed by over 500 economists arguing against the proposed increases in minimum wages in the US.
The fact that the letter itself was initiated by a party with a vested interest has generated discussion online. I will leave people to make their own minds up on that.
More interesting is why so many economists have a firm belief that minimum wage increases are a bad thing. Aside from the toy models we present to students to introduce economic principles, where is the firm empirical evidence that would lead over 500 professionals to sign their name to something like this?
As this 1982 NBER survey shows, pretty much nothing was known empirically about the employment impact of minimum wages up to that stage despite a substantial body of theoretical work. A body of empirical work that followed generally has found no effects or even positive employment effects. The most famous paper directly estimating minimum wage effects on unemployment is this Card and Krueger AER paper that finds positive employment effects. It has been cited over 1400 times and debated over and again. Another highly cited UK study finds no adverse employment effects.
There is no credible empirical study documenting increases in unemployment following changes in minimum wage legislation. Nor are there credible empirical studies linking temporal and spatial variation in unemployment to minimum wage legislation. Simply type “minimum wages unemployment” into google scholar and sample the papers from peer-reviewed journals that come up. You will find some papers showing that minimum wage effects on unemployment result from highly stylised theoretical models but no papers in high-level peer reviewed journals showing a clear negative aggregate employment effect. Please feel free to link to some credible empirical evidence in the comments if you think I am overdoing the case. Here, for example, is a meta-analysis of UK studies finding no employment effect. With the empirical literature in mind, another group of economists have signed a letter in support of minimum wage increases.
Obviously people outside of economics will cite this as another case of economists not being able to agree. But the difference is the second group can point to empirical evidence. It is baffling as to where the first group derive their confidence from.
I have been waiting for someone else to post on the national accounts data for 2013, available here, but no-one has yet, and it deserves a thread.
Real GDP, which as we know is mis-measured as a result of transfer pricing, declined 0.3% in 2013. Real GNP, which we learned last year has its problems too, was up by 3.4%. Nominal GDP rose by just 0.1%, which is not good for the debt to GDP ratio. Nominal GNP rose by 4%.
I guess that a marketing problem the government faces is that if it plays up the GNP numbers too much as being clearly superior, which I suppose we still believe they are (?), someone out there may start dividing our debt by GNP.
By Philip Lane
March 11th, 2014The readership may be interested in my new paper: here.
By John Cotter
March 11th, 2014FMC Seminar: Fear and Loathing in the Housing Market: Evidence from Search Query Data
Speaker: Dr. Stuart A. Gabriel (Professor of Finance at UCLA & FMC2 Collaborator)
Date: Wednesday, March 12th 2014 at 6:00 PM (All are welcome to attend free of charge)
Location: Clarion Hotel, Excise Walk, IFSC , Dublin
For further details and to register please visit the seminar webpage. http://fmc-cluster.org/index.php?option=com_content&view=article&id=224
Refreshments will be available from 5.30pm. For catering purposes please register.
Summary:
In this presentation Professor Gabriel will outline a Big Data approach to determining levels of housing distress. Using Google search data the presentation will document a broad-based and real-time index (the Housing Distress Index (HDI)) of housing distress. The presentation will detail the characteristics of the HDI, how it compares to other indicators of housing distress, and its predictive power in determining the extent of housing distress.
By Philip Lane
March 10th, 2014Patrick Honohan’s Cunningham Medal Lecture at the RIA is here.
A couple of charts and commentary from recent Macro Financial Reviews published by the Central Bank on non-property SME/corporate lending in Ireland.
Irish SMEs and non-financial firms are operating under considerable macro-financial headwinds. Overall, the sector accounts for 19 per cent of the domestic banks’ aggregate loan book. The value of impaired loans stood at €10.8 billion in December 2012, representing 25 per cent of the SME/corporate loan book, up from 21 per cent of the book at the end of 2011.
The exposure of the domestic banks to SME/corporate and CRE portfolios is also substantial, representing 19 per cent and 18 per cent of the domestic banks’ aggregate loan book, respectively. Impairment rates are noticeably higher than residential mortgage portfolios. The latest data indicate that impaired SME/corporate loans have risen from 24 per cent in 2012 Q2 to 27 per cent in 2013 Q3 while CRE NPLs went from 51 per cent to 61 per cent over the same period.
If loans, classified as “watch upper” and “watch lower” by domestic banks are included with impaired loans, the percentage of “vulnerable” SME/Corporate loans in 2013 Q3 rises to 45 per cent while the equivalent figure for CRE is 78 per cent.
By Philip Lane
March 10th, 2014Simon Nixon writes in the WSJ here.
The Irish Times today, page 2:
$36m
Amount Apple paid in Irish taxes between 2004 and 2008, despite the 12.5% rate meaning they have paid in the region of $890m
Editorial: Apple’s lucrative tax loophole
…figures obtained by The Irish Times show that between 2004 and 2008 the consumer electronics giant reduced its Irish tax bill by over €850 million…
Yes, because the profits of a US company selling products designed in the US, manufactured in China and sold to customers in Australia actually should be taxed in Ireland (only we’re not sure whether it is in $ or €).
Prof. Morgan Kelly at the UCD Economics Society.
By Philip Lane
March 6th, 2014Applications are sought from candidates interested in pursuing a PhD in energy economics in Trinity College Dublin. Areas of interest include topics on energy in the fields of behavioural economics, industrial organisation, finance and microeconomics. This PhD project is sponsored by Science Foundation Ireland and funding covers PhD stipend and fees for four years plus a travel and equipment budget. Teaching opportunities may also be available. Interested PhD candidates must hold a masters in Economics (with content similar to the MSc in Economics offered by the TCD Economics Dept). Interested applicants should send their CV to Eleanor Denny (dennye at tcd.ie) by 31st March 2014.
Yesterday, the EC published the results of the in-depth reviews under the Macroeconomic Imbalance Procedure. The conclusion for Ireland is that there are “imbalances that require specific monitoring and decisive policy action”.
The MIP has been around for a couple of years but it is still far from clear that it has delivered anything. One thing we do get are documents which compile and illustrate a very broad range of data on the Member States. Yesterday these included the in-depth review of Ireland which has 65 graphs to peruse, but with little to be learned.
The Central Bank have released the Q4 2013 update of their mortgage arrears statistics.
For Primary Dwelling Houses (PDHs), 12.6 per cent of accounts are in arrears of 90 days or more. This compares to 11.4 per cent of accounts in similar arrears in the unaudited monthly data for December published by the Department of Finance.
The Department of Finance figures cover the six banks operating under the Mortgage Arrears Resolution Targets (MART) process. These banks (ACC, AIB, BOI, KBC, PTSB, ULSTER) provide 90 per cent of mortgage lending in Ireland so it is clear that the remaining 10 per cent of mortgages (from the former BOSI and INBS as well as the various sub-prime lenders) have a far higher arrears rate – somewhere around 23.5 per cent. The 90-day arrears rates for the INBS and subprime mortgages are greater than 50 per cent.
In today’s Central Bank statistics we see the total number of PDH accounts in arrears continue to fall and for the first time there was a decline in the number of accounts 90 days or more in arrears.
However, the situation of those in existing arrears continues to deteriorate with yet another significant increase in the number of accounts now 720 days or more in arrears (31,834 to 33,589).
On average the accounts greater than 720 days in arrears are just under €42,000 in arrears. Across the statistics there is an average of roughly 1.25 accounts per household.
The outstanding balance on mortgages in arrears fell from €25.6 billion to €24.4 billion of which €18.2 billion are in arrears of 90 days or more. The total amount of arrears rose from €2.17 billion to €2.24 billion.
The total amount of PDH mortgage debt continues to fall and is now at €107.4 billion, compared to €118.6 billion when the series began in September 2009. However, it should be noted that the release mentions “asset sales” that took place over the quarter but it is not clear what impact these have on the figures. The sales refer to mortgages that were sold by one of the reporting institutions, and are therefore no longer included in the statistics.
At the of December there were 84,053 restructured PDH accounts and 79.3 per cent were deemed to be meeting the conditions of the restructure. There is a new table providing these rates by each type of restructure.
Reduced payment less than interest only (4,264) and arrears capitalisation (18,516 accounts) are the worst performing restructures for PDH accounts. There were only 14 accounts granted a permanent interest rate reduction.
As expected the number of split mortgages continues to grow rapidly. It increased from 1,154 in Q3 to 3,268 in Q4 and, with 96.3 per cent compliance, it is the best performing restructure for PDHs. This is likely linked to the incentives built in to the restructure. There are likely to be many more split mortgages coming through as there are 9,722 restructured accounts classed as “Other” most of which are “accounts that have been offered a long-term solution, pending the completion of six months of successful payment.”
There were 63 forced repossession in the quarter and 105 voluntary surrenders.
Court proceedings were initiated in 1,491 cases. Up to Q2 2013 the average number of proceedings issued per quarter was around 250. This increased massively in the second half of 2013. During Q4, 258 court proceedings were concluded and 82 court orders for repossession were granted. Of the 176 concluded by other means it is probable that many of these see the borrower and lender enter a new arrangement through a restructuring of the original loan agreement with others ending by way of voluntary surrender/abandonment.
Data on the Buy-to-Let sector are also included in both releases.
My recent post on the results of the latest Quarterly National Household Survey (QNHS) provoked some discussion of the Irish unemployment data. I thought it would be helpful to follow up by comparing the evidence available from three measures of unemployment, namely, the Live Register (LR) and two series derived from the QNHS.
The LR data are based on administrative records of those ‘signing on’ for various entitlements, principally Jobseeker’s assistance and benefit. It also includes some people who are working short-time, as well as some seasonal and casual workers who are not fully unemployed, and some people gaining credited social welfare contributions who may not be actively seeking work. In fact Central Statistics Office in its monthly release of the LR figures warns that they are not designed to measure unemployment.
The QNHS is designed specifically to measure employment and unemployment. Similar surveys are conducted across the EU with the aim of providing internationally-comparably measures of labour market performance. The widely-quoted measures of employment and unemployment from the QNHS are based on International Labour Office (ILO) definitions. To be ‘ILO unemployed’ a person must in the week before the survey be without work but available for work and have recently taken specific job-search steps.
A separate measure of unemployment is also published in the QNHS, based on the concept of ‘Principal Economic Status’ – that is, what the respondent considers his or her ‘usual situation with regard to employment’ .
The following Figure shows how these three measures of unemployment have behaved since 2007.
(The LR figures are published monthly. Quarterly averages have been calculated for comparability with the QNHS data. The figures have not been seasonally adjusted.)
The most important showing is the broad consistency of the three measures, especially with regard to changes in the level of unemployment. There is no evidence of a trend in the divergences between the series.
As is to be expected the LR is consistently higher than the ILO measure of unemployment. The excess has varied from a high of 68 per cent in 2007 Q1 to a low of 36 per cent in 2012 Q2. There was a marked downward trend in the ratio between 2008 and 2012 – in times of rising unemployment the gap between the two measures narrows, but as the labour market improved from mid-2012 onwards the ratio has risen. ILO unemployment has fallen by 71,000 since mid-2012, the LR by only 54,000.
The PES measure falls consistently between the two other series, but closely tracks their movements.
In recent years both here and in the US increased attention has been devoted to ‘discouraged workers’ - people who are no longer seeking employment because they believe there are no jobs available. In response to the desire to improve the measurement of unemployment during the recession, a new series on the ‘Potential Additional Labour Force’ (PALF) has been presented in the QNHS. This includes ‘persons seeking work but not immediately available’ and ‘persons available for but not seeking work’.
Since it was launched, the PALF series has followed the same broad pattern as the three measures of unemployment shown in the Figure. Over the course of 2013 the numbers include in the PALF have fallen from 60,000 to 49,300.
Much further analysis could be performed on the these data. It would be interesting to look at the series by age and sex, for example. But suffice for the moment that all the available evidence paints a consistent picture of recent developments in the Irish labour market.
The results of the Quarter 4 2013 National Household Survey are available here.
The year-on-year increase in the numbers at work of 3.3% is all the more remarkable in view of the continuing decline in public sector employment.
The overall unemployment rate (seasonally adjusted) fell from 12.7% to 12.1%, and the long-term rate from 8.2% to 7.2%.