The public choice of higher French tax rates
Remember last week when Hollande and the Socialists proposed a top marginal rate of 75% and enjoyed a boost in the polls? Suddenly the idea is meeting with greater public resistance:
Even though the vast majority of earners in France wouldn’t be liable, Hollande’s tax has been a headline-grabber in the presidential campaign, partly because football is proving to be among the most vocal of its critics. Only income above 1 million euros ($1.31 million) would face the top whack of 75 percent. The first million earned would be taxed at lower rates. Just 3,000 of the highest-earning taxpayers in France are likely to be affected.
From French league president Frederic Thiriez down, the refrain is often the same: top players will flee to countries with lower taxes, leaving France — the 1998 World Cup champion — with second-rate football. Thiriez estimates 120-150 players — about one-quarter of those in France’s top division — earn enough to make them liable for Hollande’s tax. In Italy, Germany, England and Spain, which have Europe’s strongest leagues and clubs, top income tax rates range from 43 to 52 percent. The current top rate in France is 41 percent.
“It would be the death of French football,” Thiriez told sports newspaper L’Equipe. To RMC radio, he spoke of a “catastrophe” and of France relegated to “play in the second division of Europe, along with Slovenia or countries like that.”
Michel Seydoux, president of current French champion, Lille, said Hollande’s tax would produce “an impoverished spectacle.”
Still, there is pushback:
He’s thrown back the criticism from football, suggesting it is living too well. Specifically, he cited the multimillion euro salary the Qatari owners of Paris Saint-Germain reportedly pay their Italian manager, Carlo Ancelotti.
“Football administrators need to clean house a bit,” Hollande said. “Does the level of our league justify such astronomic salaries?”
…”When you see their cars in the garage here, it makes you sick,” said Thomas Mascheretti, a fan who approved of Hollande’s proposal.
File under: Ideas have Consequences.
The article is here, and for the pointer I thank Fred Smalkin.
Robert Shiller’s new book
Assorted links
1. Emily Chamlee-Wright is to be provost and dean at Washington College.
2. NBA geography.
3. A Straussian reading of Tabarrok’s Launching the Innovation Renaissance, by the excellent Eli Dourado; “Launching the Innovation Renaissance represents Alex Tabarrok standing athwart history, yelling “Back up 800 years!””.
4. Guns don’t kill people, cannonballs do.
5. The language that is German, a response to Michael Lewis.
Three on Launching
1. The excellent Reihan Salam writes, “Tabarrok’s Launching the Innovation Renaissance is my favorite manifesto in years. In a better world, it would be the roadmap for the U.S. center-right.” Small steps towards a much better world, Reihan!
2. A truly Straussian Straussian Reading of Launching the Innovation Renaissance.
3. I will be speaking at Inventing the Future: What’s Next for Patent Reform at AEI in Washington, DC on Wed. March 14, 12:30-2:00.
Some Economics of Pay What You Want Pricing
A number of musicians and game developers have experimented with pay-what-you-want pricing (e.g. see the important field experiment by Gneezy et al. and less formal reports from Radiohead, Norwegian composer Gisle Martens Meyer and the video-game makers 2D Boy and Joost van Dongen.)
Imagine that under the pay-what-you-want model consumers choose to split their consumer-surplus with the seller. Here is a neat little proof for the linear demand case that under this heuristic profits are as large as under monopoly pricing! I have also assumed MC of zero which makes sense for digital goods and is also quite important to the result as pay-what-you-want can result in negative profits should consumers choose to pay less than marginal cost.
Split the consumer surplus is optimistic for the seller although splitting the gains does happen quite often in the dictator game so it is not without interest. Probably more importantly, pay-what-you-want pricing is going to be advantageous when the seller also sells a complementary good, such as concerts, which benefit from consumption spillovers from the pay-what-you-want good.
Matt’s new book
As I had predicted, it is very good. Most of all I like the suggestion that the economy is becoming more Ricardian with higher resource rents.
I am assuming that most of the United States will not follow Matt’s policy prescriptions, which are unpopular with homeowners to say the least. Which secondary adjustments and rent-seeking losses will result? If you cannot easily live in Manhattan, next to the stylish people, how will you respond? One option is to damn them and tune into NASCAR. Instead you might compete more intensely for their attention and approval. Write a blog. Send them ads. Try to chip away at the privileged status of their attention and capture some of that value for yourself. Either way cultural polarization seems to increase.
For all their other virtues, lower rents also help satisfy the demand for affiliation. I know people who are proud just to live in San Francisco and not only because it signals their income and status. It sounds cool. At what level of zoning is this consumer surplus maximized?
What is the most serious estimate of how much denser agglomeration — boosted by lower rents — would increase productivity? I do not take the urban wage premium as the correct measure here, since at the margin the extra worker currently does not move in. I would like to read a good study of this issue, which I have discussed with Ryan Avent as well.
Is this available improvement a level effect or a rate effect?
If people were the size of ants, without encountering any absurdities of physics or biology, how would the “public choice” of urban building change? Would urban centers be equally exclusionary?
How much space do we need to live? Say you have a 3-D printer nanobox which can produce (or obliterate) any output on demand. Is a studio apartment then enough? Just print out your bed come 11 p.m., or summon up your kitchen equipment before the dinner party. How much of the demand for space is for storage and how much is for other motives? My personal demand for space is highly storage-intensive, but I may be an exception in this regard.
If zoning stays too tight, are there (second best) general negative externalities from storage?
I don’t recall Matt calling for the widespread privatization of government-owned land, but would he agree this is the logical next step? It’s hardly as important as freeing up more urban and suburban building, but is there any good reason for government to own all that turf? I don’t think so. Let’s keep the public works and military facilities and national parks, and sell most of the rest.
Here is Matt’s summary of the book.
The evolution of labor markets, most of all in Spain
Temporary contracts were introduced in a labor reform approved in 1984 by the Socialist government of Felipe González, and they have remained in favor ever since – even more so during times of crisis, such as those currently being seen in Spain, where 93 out of every 100 contracts signed of late have been temporary.
Here is more.
Two CDs in a row
Diamond Mine, by King Creosote and Jon Hopkins,
followed by
Julianna Barwick, The Magic Place.
They sound much better, one after the other, in that order. I will file them together on my shelf, once they leave my living room, and break my usual habit of alphabetizing.
I also like to follow Mahler symphonies with a short Mozart piano piece, in a major key preferably.
Can you think of other sensible combinations of music or CD sequences?
Albuquerque and Santa Fe and Gallup food bleg
Where should we eat? In Albuquerque I am most interested in green and red chili. Any place between the cities would be a useful recommendation as well.
I thank you all in advance.
Assorted links
1. Confessions of a ticket scalper.
2. Tim Congdon reviews the Wapshott Hayek-Keynes book.
3. Non-limited liability for the UK banking system, a new proposal.
4. Another look at Target2, and the economics of the pill.
*The Rent is Too Damn High*
The new eBook from Matt Yglesias is out today, I will likely read (and finish!) my copy tonight. Self-recommending, you can get one here.
The hangover from a dishonest election
That is the Russian stock index. The decline may well be noise, but a fall of over 3 percent is nonetheless worth a ponder.
Democracy, wealth, and local stimulus spending
Paul Krugman asked a good question yesterday: “…if states and localities can borrow freely, how do you explain the drastic fall in their spending I have been documenting?”
This is maybe too literal an answer to address his macroeconomic concerns, but I view state and local government spending as falling because voters wanted it to, either directly or indirectly. Inflation-adjusted net worth per capita is still below the level of the late 1990s, and not returning any time quickly (an important point), and so voters/spenders wanted to cut back somewhere. Local government is the target they chose, and not just in the Red states. My point is not that the median voter is all-wise, but rather the Austerians are the guy next door. Voters apparently don’t see marginal local government activity as having the same value as cash in their pockets. There still may be a role for a federal fiscal bridge to ease the transition, but in democratic systems some expenditure declines are in the cards, just as the rollicking revenues of earlier years led to big boosts in state and local spending. We are not as wealthy as we thought we were, and greater federal borrowing can blunt this reality only to some extent. The notion of a voter ideal point ought to somewhere enter the analysis.
A few months ago I saw a tweet — I forget from whom — noting that the economy would be (would have been) booming if only not for the state and local cutbacks. I differ from that perspective, and I would rephrase it as the (not false) claim that the economy would be booming if only we were wealthier.
I’ve yet to see a good analysis of how freely state and local governments can borrow at the margin, especially in response to a decline in tax revenues. Many bloggers have attacked this piece by John Taylor (pdf), as Taylor argued that the stimulus aid led to a corresponding reduction in state and local borrowing. We still don’t know if this is true, but do we know that it is false? The arguments against Taylor consist of little more than saying he cannot be right. Check out the graph on Taylor’s p.5, noting that inverse correlation is not the same as causality. It’s striking nonetheless, as state and local borrowing goes down as receipts from the federal government go up. Constitutional balanced budget requirements may or may not bind, as many state and local governments can “borrow” quite readily by adjusting contributions to their pension funds, among other moves.
A related question is how voters understand the ability of their state and local governments to spend more by “borrowing” against pension funds, or changing accounting, or in other words what they saw as the opportunity cost of continuing previous levels of public spending at the state and local levels.
My view in 2009 was that federal aid to state and local governments was the one part of the stimulus bill which made sense. It is easier to preserve old jobs than to create new ones. Still, when it comes to analyzing the state and local cutbacks, and the effectiveness of federal aid, we don’t have a lot of clear answers.
Does inequality lead to a financial crisis?
Michael Bordo and Christopher Meissner say basically no (NBER gate):
The recent global crisis has sparked interest in the relationship between income inequality, credit booms, and financial crises. Rajan (2010) and Kumhof and Rancière (2011) propose that rising inequality led to a credit boom and eventually to a financial crisis in the US in the first decade of the 21st century as it did in the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises.
Here is their earlier paper (pdf, ungated) on whether crises boost inequality.
Conspiracy theory bleg
People in other countries, including the elites, often believe quite bizarre conspiracy theories about the United States and its government, even when those theories contradict each other. Do you know of good social science research trying to explain the (general) content of what they believe, why they believe it, and how they ever — if indeed they ever — come to a more reasoned understanding?
I thank you all in advance for your suggestions.