How you know Singaporeans are really serious about microeconomics

by on August 26, 2013 at 12:18 pm in Economics, Law | Permalink

If you have to pay a fine, say for incorrect behavior in public, the fine is defined as say “$250 plus GST,” where GST is a consumption tax similar to a VAT.

Think about it.  Presumably you derive consumption pleasure from the fined activity.  Paying the fine (stochastically) is, at the margin, equated with the return from other forms of consumption.  The other forms of consumption are taxed and thus subject to GST.  Therefore the fine-generating activity should be taxed too.

Jonathan August 26, 2013 at 12:35 pm

Maybe so, maybe not. If you jaywalk to save leisure time, your value of your leisure time is not taxed.

Michael August 26, 2013 at 2:15 pm

Unless you want to claim that the cost of leisure time is the opportunity cost associated with forgone wages, which are taxed.

KFC August 27, 2013 at 5:57 am

If you go from “10 minutes walking + 50 minutes leisure” to “5 minutes walking + 55 minutes leisure” through strategic use of jaywalking, what is the increase in opportunity cost in foregone wages associated with your increased leisure time?

Jonathan August 26, 2013 at 2:35 pm

… and, at a corner solution. (Of course if you’re at a corner, you wouldn’t be jaywalking…. [sometimes I make *myself* groan])

Zachary August 26, 2013 at 6:26 pm

HAHA! +1!

Steve August 26, 2013 at 12:53 pm

I wouldn’t think into this too much – it is exactly the same in Australia. The motive is merely consistency/administrative simplicity.

Rahul August 26, 2013 at 1:37 pm

Isn’t this an academic debate? If it’s ending up in the same pocket after all what’s the difference between a $100 ++ 10%tax fine and a $110 conventional no-tax fine.

If at all, I’d say it reveals a culture of bureaucratic nitpicking and literal obedience of rules.

anon August 26, 2013 at 2:15 pm

Because literally following the rules would be ridiculous.

Eric August 29, 2013 at 5:53 pm

I like to keep the rules 3 feet in front of me at all times. That way they can’t do anything tricky without my seeing them.

Willitts August 27, 2013 at 3:46 am

If this were an academic debate we’d be saying that the Ramsey Rule likely makes the one size fits all tax inefficient even in the case of externalities.

Ryan P August 27, 2013 at 7:51 am

Does Ramsey undermine the principle of additivity – externality taxes aren’t distorting in general, so why economize on them? (For that matter, there’s always the result that says under some conditions on cross elasticity with leisure, you might want to just go with one wage or consumption tax.)

Theo Clifford August 26, 2013 at 1:05 pm

I wonder whether the incidence of this tax falls on the person paying the fine or the public body collecting it.

Rahul August 26, 2013 at 3:14 pm

Maybe they ought to emulate the airline industry: $25 fine and $250 in surcharges, miscellaneous fees and taxes.

Andrew' August 26, 2013 at 1:16 pm

It’s not a fine, it’s a tax. Rather than taxing inappropriate behavior in public, maybe we should just tax behavior in public.

Nigel August 26, 2013 at 1:54 pm

On the other hand, you could choose to look at it as a rather less extreme version of the old Chinese bullet fee.

Martin August 26, 2013 at 2:00 pm

Interesting. So a business would pay a lower fine than an individual? I wonder how often small business owners ask the GST back pretending it to be a business expense.

Jacques René Giguère. August 26, 2013 at 2:27 pm

It’s merely an accounting trick to send some of the money to different accounts in the Government accounting system…

Brendan Perrine August 26, 2013 at 2:59 pm

If the GST is raised this does not produce a substitution effect into more bad public behavior. It doesn’t decrease by the substitution effect if the GST is lowered either.

Mark Thorson August 26, 2013 at 3:48 pm

Maybe they should consider taxing the tax. And taxing the tax on the tax. And taxing the tax on the . . .

Shanth August 26, 2013 at 4:33 pm

So basically change the fine to (Fine)/(1-TaxRate)

whatsthat August 26, 2013 at 7:15 pm

Fines don’t get decided by a market process.

Handle August 26, 2013 at 7:26 pm

I wonder how Tyler got wind of this particular bit of information. We’re not going to find him on the Straits Times blotter, are we?

Silas Barta August 26, 2013 at 7:59 pm

Great thinking, Tyler_Cowen, except that it’s all going to the same place so it’s equivalent to what “non-taxing” governments already do. How do you distinguish an untaxed $250 fine from one that’s $210 + $40 tax?

Brian August 27, 2013 at 1:10 am

If it were genuinely a fine, you wouldn’t tax it.

A fee is an attempt to defray the cost of providing a government service and could be taxed. A fee is a kind of price.

A fine is an attempt to discourage a behavior. It is not a price; the state would prefer not to collect fines if it could because the behavior disappeared.

The two things are different.

And a fine should be, in many cases, indexed to income so that the rich as well as the poor can be prohibited from abusing the commons. You would know that a government is serious about microeconomics if its fines were a fraction of income, like a tiny income tax. Running a red light would result in a levy of, say, 0.35% of your annual income or $200, whichever is more.

I believe Finland tried this.

Ryan P August 27, 2013 at 9:44 am

I would think the fine is very often (or at least it should be often) an attempt to be a price — the state is trying to internalize an externality. From this point of view, I don’t see why you’d want to make fines a function of income. The exact same action doesn’t become intrinsically more harmful to other people when performed by a higher income person, so the optimal fine is the same either way.

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