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Posts Tagged ‘International Monetary Fund’

When I first came to Washington back in the 1980s, there was near-universal support and enthusiasm for a balanced budget amendment among advocates of limited government.

The support is still there, I’m guessing, but the enthusiasm is not nearly as intense.

There are three reasons for this drop.

  1. Political reality – There is zero chance that a balanced budget amendment would get the necessary two-thirds vote in both the House and Senate. And if that happened, by some miracle, it’s highly unlikely that it would get the necessary support for ratification in three-fourths of state legislatures.
  2. Unfavorable evidence from the statesAccording to the National Conference of State Legislatures, every state other than Vermont has some sort of balanced budget requirement. Yet those rules don’t prevent states like California, Illinois, Connecticut, and New York from adopting bad fiscal policy.
  3. Favorable evidence for the alternative approach of spending restraint – While balanced budget rules don’t seem to work very well, policies that explicitly restrain spending work very well. The data from Switzerland, Hong Kong, and Colorado is particularly persuasive.

Advocates of a balanced budget amendment have some good responses to these points. They explain that it’s right to push good policy, regardless of the political situation. Since I’m a strong advocate for a flat tax even though it isn’t likely to happen, I can’t argue with this logic.

Regarding the last two points, advocates explain that older versions of a balanced budget requirement simply required a supermajority for more debt, but newer versions also include a supermajority requirement to raise taxes. This means – at least indirectly – that the amendment actually is a vehicle for spending restraint.

This doesn’t solve the political challenge, but it’s why advocates of limited government need to be completely unified in favor of tax-limitation language in a balanced budget amendment. And they may want to consider being more explicit that the real goal is to restrain spending so that government grows slower than the productive sector of the economy.

Interestingly, even the International Monetary Fund (which is normally a source of bad analysis) understands that spending limits work better than rules that focus on deficits and debt.

Here are some of the findings from a new IMF study that looks at the dismal performance of the European Union’s Stability and Growth Pact. The SGP supposedly limited deficits to 3 percent of GDP and debt to 60 percent of GDP, but the requirement failed largely because politicians couldn’t resist the temptation to spend more in years when revenue grew rapidly.

An analysis of stability programs during 1999–2007 suggests that actual expenditure growth in euro area countries often exceeded the planned pace, in particular when there were unanticipated revenue increases. Countries were simply unable to save the extra revenues and build up fiscal buffers. …This reveals an important asymmetry: governments were often unable to preserve revenue windfalls and faced difficulties in restraining their expenditure in response to revenue shortfalls when consolidation was needed. …The 3 percent of GDP nominal deficit ceiling did not prevent countries from spending their revenue windfalls in the mid-2000s. … Under the SGP, noncompliance has been the rule rather than the exception. …The drawbacks of the nominal deficit ceiling are particularly apparent when the economy is booming, as it is compatible with very large structural deficits.

The good news is that the SGP has been modified and now (at least theoretically) requires spending restraint.

The initial Pact only included three supranational rules… As of 2014, fiscal aggregates are tied by an intricate set of constraints…government spending (net of new revenue measures) is constrained to grow in line with trend GDP. …the expenditure growth ceiling may seem the most appealing. This indicator is tractable (directly constraining the budget), easy to communicate to the public, and conceptually sound… Based on simulations, Debrun and others (2008) show that an expenditure growth rule with a debt feedback ensures a better convergence towards the debt objective, while allowing greater flexibility in response to shocks. IMF (2012) demonstrates the good performance of the expenditure growth ceiling

This modified system presumably will lead to better (or less worse) policy in the future, though it’s unclear whether various nations will abide by the new EU rules.

One problem is that the overall system of fiscal rules has become rather complicated, as illustrated by this image from the IMF study.

Which brings us back to the third point above. If the goal is to restrain spending (and it should be), then why set up a complicated system that first and foremost is focused on red ink?

That’s why the Swiss Debt Brake is the right model for how to get spending under control. And this video explains why the objective should be spending restraint rather than deficit reduction.

And for those who fixate on red ink, it’s worth noting that if you deal with the underlying disease of too much government, you quickly solve the symptom of deficits.

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In early November of last year, I shared some remarkable data from a groundbreaking study published by the European Central Bank (ECB).

The study looking at public sector efficiency (PSE) in developed nations and found that “big governments spend a lot more and deliver considerably less.”

Later in the month, I wrote about a second ECB study that looked at a broader set of nations and further confirmed that smaller government produces better results.

The first ECB study clearly concluded that “small” government is more efficient and productive than either “medium” government or “big” government. Based on the second ECB study, we can conclude that it’s even better if government is…well, I guess we’ll have to use the term “smaller than small.”

Today, we can augment this research by looking at a new study from the International Monetary Fund.

The IMF’s new working paper on “Fiscal Decentralization and the Efficiency of Public Service Delivery” shows that it’s not only good to have small government, but that it’s also good to have decentralized government. Here are the main findings.

This paper analyzes the impacts of fiscal decentralization on the efficiency of public service delivery. …The paper’s findings suggest that fiscal decentralization can serve as a policy tool to improve performance… an adequate institutional environment is needed for decentralization to improve public service delivery. Such conditions include effective autonomy of local governments, strong accountability at various levels of institutions, good governance, and strong capacity at the local level. Moreover, a sufficient degree of expenditure decentralization seems necessary to obtain a positive outcome. And finally, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue to obtain favorable outcomes.

Here’s some explanation of why it’s better to have decisions made by sub-national governments.

Local governments possess better access to local preferences and, consequently, have an informational advantage over the central government in deciding which provision of goods and services would best satisfy citizens’ needs. …Local accountability is expected to put pressure on local authorities to continuously search for ways to produce and deliver better public service under limited resources, leading to “productive efficiency.” …Decentralization…encourages competition across local governments to improve public services; voters can use the performance of neighboring governments to make inferences about the competence or benevolence of their own local politicians… Fiscal decentralization may lead to a decrease in lobbying by interest groups.

I especially like the fact that the study recognized the valuable role of tax competition in limiting the greed of the political class.

The study also noted that genuine federalism leads to spending competition, though I get the impression that the authors seems to think this is a negative outcome.

Fiscal decentralization can also obstruct the redistribution role of the central government.

For what it’s worth (and based on previous academic research), I agree that decentralization makes it harder for government to be profligate.

But that’s a good thing. I want to “obstruct” economically destructive redistribution.

Now let’s look at the specific finding from the study.

…expenditure decentralization seems to improve the efficiency of public service delivery in advanced economies… To quantify this effect, one could say that a 5 percent increase in fiscal decentralization would lead to 2.9 percentage points of efficiency gains in public service delivery. …about one third of public expenditure would need to be shifted to the local authorities to obtain positive outcomes from fiscal decentralization.

Though it’s worth emphasizing that decentralization works when the sub-national levels of government are completely responsible for raising and spending their own money.

Revenue decentralization shows positive and statistically significant impacts on public service delivery for advanced economies and emerging economies and developing countries. …These findings might imply the need to accompany expenditure decentralization with sufficient revenue decentralization to ensure improvement of performance.

I’ve already argued that federalism is good politics and good policy.

Now we have evidence that it’s good government.

And who would have guessed that the normally statist IMF would be the bearer of this good news.

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For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.

The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

If you look at the Fraser Institute’s Economic Freedom of the World, there are five major policy categories. As you can see from this table, China’s weakest category is “size of government.” I’ve circled the most relevant data point.

The bottom line is that China could – and should – boost its overall ranking by improving its size-of-government score. And that means reducing the burden of government spending and lowering tax rates.

With this in mind, I was very interested to see that the International Monetary Fund just published a study entitled, “China: How Can Revenue Reforms Contribute to Inclusive and Sustainable Growth.”

Did this mean the IMF was recommending pro-growth tax reform? After reading the following sentence, I was hopeful.

We highlight tax policies that can facilitate economic transition to high income status, promote fiscal sustainability and make growth more inclusive.

After all, surely you make the “transition to high income status” with low tax rates rather than high tax rates, right?

Moreover, the study also acknowledged that China’s tax burden already is fairly substantial.

Tax revenue has accounted for about 22 percent of GDP in 2013…the overall tax burden is similar to the tax-to-GDP ratio for other Asian economies such as Australia, Japan, and Korea.

So what did the IMF recommend? A flat tax? Elimination of certain taxes? Reductions in double taxation? Lowering the overall tax burden?

Hardly.

The bureaucrats actually want China to become more like France and Greece.

I’m not joking. The IMF study actually wants people to believe that making the income tax more punitive will somehow boost prosperity.

Increasing the de facto progressivity of the individual income tax would promote more inclusive growth.

Amazingly, the IMF wants more “progressivity” even though the folks in the top 20 percent are the only ones who pay any income tax under the current system.

…around 80 percent of urban wage earners are not subject to the individual income tax because of the high basic personal allowance.

But a more punitive income tax is just the beginning. The IMF wants further tax hikes.

Broadening the base and unifying rates would increase VAT revenue considerably. …tax based on fossil fuel carbon emission rates can be introduced. …the current levies on local air pollutants such as SO2 and NOX emissions and small particulates could be significantly increased.

What’s especially discouraging is that the IMF explicitly wants a higher tax burden to finance an increase in the burden of government spending.

According to the proposed reform scenario, China could potentially aim to increase public expenditures by around 1 percent of GDP for education, 2‒3 percent of GDP for health care, and another 3–4 percent of GDP to fully finance the basic old-age pension and to gradually meet the legacy costs of current obligations. These would add up to additional social expenditures of around 7‒8 percent of GDP by 2030… The size of additional social spending is large but affordable as part of a package of fiscal reforms.

Indeed, the study explicitly says China should become more like the failed European welfare states that dominate the OECD.

Compared to OECD economies, China has considerable scope to increase the redistributive role of fiscal policy. …These revenue reforms serve as a key part of a package of reforms to boost social spending.

You won’t be surprised to learn, by the way, that the study contains zero evidence (because there isn’t any) to back up the assertion that a more punitive tax system will lead to more growth. Likewise, there’s zero evidence (because there isn’t any) to support the claim that a higher burden of government spending will boost prosperity.

No wonder the IMF is sometimes referred to as the Dr. Kevorkian of the global economy.

P.S. If you want to learn lessons from East Asia, look at the strong performance of Hong Kong, Taiwan, Singapore, and South Korea, all of which provide very impressive examples of sustained growth enabled by small government and free markets.

P.P.S. I was greatly amused when the head of China’s sovereign wealth fund mocked the Europeans for destructive welfare state policies.

P.P.P.S. Click here if you want some morbid humor about China’s pseudo-communist regime.

P.P.P.P.S. Though I give China credit for trimming at least one of the special privileges provided to government bureaucrats.

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It’s not very often that I applaud research from the International Monetary Fund.

That international bureaucracy has a bad track record of pushing for tax hikes and other policies to augment the size and power of government (which shouldn’t surprise us since the IMF’s lavishly compensated bureaucrats owe their sinecures to government and it wouldn’t make sense for them to bite the hands that feed them).

But every so often a blind squirrel finds an acorn. And that’s a good analogy to keep in mind as we review a new IMF report on the efficacy of “expenditure rules.”

The study is very neutral in its language. It describes expenditure rules and then looks at their impact. But the conclusions, at least for those of us who want to constrain government, show that these policies are very valuable.

In effect, this study confirms the desirability of my Golden Rule! Which is not why I expect from IMF research, to put it mildly.

Here are some excerpts from the IMF’s new Working Paper on expenditure rules.

In practice, expenditure rules typically take the form of a cap on nominal or real spending growth over the medium term (Figure 1). Expenditure rules are currently in place in 23 countries (11 in advanced and 12 in emerging economies).

Such rules vary, of course, is their scope and effectiveness.

Many of them apply only to parts of the budget. In some cases, governments don’t follow through on their commitments. And in other cases, the rules only apply for a few years.

Out of the 31 expenditure rules that have been introduced since 1985, 10 have already been abandoned either because the country has never complied with the rule or because fiscal consolidation was so successful that the government did not want to be restricted by the rule in good economic times. … In six of the 10 cases, the country did not comply with the rule in the year before giving it up. …In some countries, there was the perception that expenditure rules fulfilled their purpose. Following successful consolidations in Belgium, Canada, and the United States in the 1990s, these countries did not see the need to follow their national expenditure rules anymore.

But even though expenditure limits are less than perfect, they’re still effective – in part because they correctly put the focus on the disease of government spending rather than symptom of red ink.

Countries have complied with expenditure rules for more than two-third of the time. …expenditure rules have a better compliance record than budget balance and debt rules. …The higher compliance rate with expenditure rules is consistent with the fact that these rules are easy to monitor and that they immediately map into an enforceable mechanism—the annual budget itself. Besides, expenditure rules are most directly connected to instruments that the policymakers effectively control. By contrast, the budget balance, and even more so public debt, is more exposed to shocks, both positive and negative, out of the government’s control.

One of the main advantages of a spending cap is that politicians can’t go on a spending binge when the economy is growing and generating a lot of tax revenue.

One of the desirable features of expenditure rules compared to other rules is that they are not only binding in bad but also in good economic times. The compliance rate in good economic times, defined as years with a negative change in the output gap, is at 72 percent almost the same as in bad economic times at 68 percent. In contrast to other fiscal rules, countries also have incentives to break an expenditure rule in periods of high economic growth with increasing spending pressures. … two design features are in particular associated with higher compliance rates. …compliance is higher if the government directly controls the expenditure target. …Specific ceilings have the best performance record.

And the most important result is that expenditure limits are associated with a lower burden of government spending.

The results illustrate that countries with expenditure rules, in addition to other rules, exhibit on average higher primary balances (Table 2). Similarly, countries with expenditure rules also exhibit lower primary spending. …The data provide some evidence of possible implications for government size and efficiency. Event studies illustrate that the introduction of expenditure rules is indeed followed by smaller governments both in advanced and emerging countries (Figure 11a).

Here’s the relevant chart from the study.

And it’s also worth noting that expenditure rules lead to greater efficiency in spending.

…the public investment efficiency index of DablaNorris and others (2012) is higher in countries that do have expenditure rules in place compared to those that do not (Figure 11b). This could be due to investment projects being prioritized more carefully relative to the case where there is no binding constraint on spending

Needless to say, these results confirm the research from the European Central Bank showing that nations with smaller public sectors are more efficient and competent, with Singapore being a very powerful example.

One rather puzzling aspect of the IMF report is that there was virtually no mention of Switzerland’s spending cap, which is a role model of success.

Perhaps the researchers got confused because the policy is called a “debt brake,” but the practical effect of the Swiss rule is that there are annual expenditures limits.

So to augment the IMF analysis, here are some excerpts from a report prepared by the Swiss Federal Finance Administration.

The Swiss “debt brake” or “debt containment rule”…combines the stabilizing properties of an expenditure rule (because of the cyclical adjustment) with the effective debt-controlling properties of a balanced budget rule. …The amount of annual federal government expenditures has a cap, which is calculated as a function of revenues and the position of the economy in the business cycle. It is thus aimed at keeping total federal government expenditures relatively independent of cyclical variations.

Here’s a chart from the report.

And here are some of the real-world results.

The debt-to-GDP ratio of the Swiss federal Government has decreased since the implementation of the debt brake in 2003. …In the past, economic booms tended to contribute to an increase in spending. …This has not been the case since the implementation of the fiscal rule, and budget surpluses have become commonplace. … The introduction of the debt brake has changed the budget process in such a way that the target for expenditures is defined at the beginning of the process, which must not exceed the ceiling provided by the fiscal rule. It has thus become a top-down process.

The most important part of this excerpt is that the debt brake prevented big spending increases during the “boom” years when the economy was generating lots of revenue.

In effect, the grey-colored area of the graph isn’t just an “ideal representation.” It actually happened in the real world.

Though the most important and beneficial real-world consequence, which I shared back in 2013, is that the burden of government spending has declined relative to the economy’s productive sector.

This is a big reason why Switzerland is in such strong shape compared to most of its European neighbors.

And such a policy in the United States would have prevented the trillion-dollar deficits of Obama’s first term.

By the way, if you want to know why deficit numbers have been lower in recent years, it’s because we actually have been following my Golden Rule for a few years.

So maybe it’s time to add the United States to this list of nations that have made progress with spending restraint.

But the real issue, as noted in the IMF research, is sustainability. Yes, it’s good to have a few years of spending discipline, but the real key is some sort of permanent spending cap.

Which is why advocates of fiscal responsibility should focus on expenditure limits rather than balanced budget requirements.

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The International Monetary Fund isn’t my least-favorite international bureaucracy. That special honor belongs to the Organization for Economic Cooperation and Development, largely because of its efforts to undermine tax competition and protect the interests of the political class (it also tried to have me arrested, but I don’t hold that against them).

But the IMF deserves its share of disdain. It’s the Doctor Kevorkian of global economic policy, regularly advocating higher taxes and easy money even though that’s never been a recipe for national prosperity.

And it turns out that the IMF also is schizophrenic. The international bureaucracy’s latest big idea, garnering an entire chapter in the October World Economic Outlook, is that governments should spend more on infrastructure.

Barack Obama’s former chief economist supports the IMF scheme. Here some of what he wrote for the Washington Post.

…the IMF advocates substantially increased public infrastructure investment, and not just in the United States but in much of the world. It further asserts that under circumstances of high unemployment, like those prevailing in much of the industrialized world, the stimulative impact will be greater if this investment is paid for by borrowing… Why does the IMF reach these conclusions? …the infrastructure investment actually makes it possible to reduce burdens on future generations. …the IMF finds that a dollar of investment increases output by nearly $3. …in a time of economic shortfall and inadequate public investment, there is a free lunch to be had — a way that government can strengthen the economy and its own financial position.

Wow, That’s a rather aggressive claim. Governments spend $1 and the economy grows by $3.

Is Summers being accurate? What does the IMF study actually say?

It makes two big points.

The first point, which is reflected in the Summers oped, is that infrastructure spending can boost growth.

The study finds that increased public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity. In a sample of advanced economies, an increase of 1 percentage point of GDP in investment spending raises the level of output by about 0.4 percent in the same year and by 1.5 percent four years after the increase… In addition, the boost to GDP a country gets from increasing public infrastructure investment offsets the rise in debt, so that the public debt-to-GDP ratio does not rise… In other words, public infrastructure investment could pay for itself if done correctly.

But Summers neglected to give much attention to the caveats in the IMF study.

…the report cautions against just increasing infrastructure investment on any project. …The output effects are also bigger in countries with a high degree of public investment efficiency, where additional public investment spending is not wasted and is allocated to projects with high rates of return. …a key priority in economies with relatively low efficiency of public investment should be to raise the quality of infrastructure investment by improving the public investment process through, among others, better project appraisal, selection, execution, and rigorous cost-benefit analysis.

Perhaps the most important caveat, though, is that the study uses a “novel empirical strategy” to generate its results. That should raise a few alarm bells.

So is this why the IMF is schizophrenic?

Nope. Not even close.

If you want evidence of IMF schizophrenia, compare what you read above with the results from a study released by the IMF in August.

And this study focused on low-income countries, where you might expect to find the best results when looking at the impact of infrastructure spending.

So what did the author find?

On average the evidence shows only a weak positive association between investment spending and growth and only in the same year, as lagged impacts are not significant. Furthermore, there is little evidence of long term positive impacts. …The fact that the positive association is largely instantaneous argues for the importance of either reverse causality, as capital spending tends to be cut in slumps and increased in booms… In fact a slump in growth rather than a boom has followed many public capital drives of the past. Case studies indicate that public investment drives tend eventually to be financed by borrowing and have been plagued by poor analytics at the time investment projects were chosen, incentive problems and interest-group-infested investment choices. These observations suggest that the current public investment drives will be more likely to succeed if governments do not behave as in the past.

Wow. Not only is the short-run effect a mirage based on causality, but the long-run impact is negative.

But the real clincher is the conclusion that “public investment” is productive only “if governments do not behave as in the past.”

In other words, we have to assume that politicians, interest groups, and bureaucrats will suddenly stop acting like politicians, interest groups, and bureaucrats.

Yeah, good luck with that.

But it’s not just a cranky libertarian like me who thinks it is foolish to expect good behavior from government.

Charles Lane, an editorial writer who focuses on economic issues for the left-leaning Washington Post, is similarly skeptical.

Writing about the IMF’s October pro-infrastructure study, he thinks it relies on sketchy assumptions.

The story is told of three professors — a chemist, a physicist and an economist — who find themselves shipwrecked with a large supply of canned food but no way to open the cans. The chemist proposes a solvent made from native plant oils. The physicist suggests climbing a tree to just the right height, then dropping the cans on some rocks below. “Guys, you’re making this too hard,” the economist interjects. “Assume we have a can opener.” Keep that old chestnut in mind as you evaluate the International Monetary Fund’s latest recommendation… A careful reading of the IMF report, however, reveals that this happy scenario hinges on at least two big “ifs.”

The first “if” deals with the Keynesian argument that government spending “stimulates” growth, which I don’t think merits serious consideration.

But feel free to click here, here, here, and here if you want to learn more about that issues.

So let’s instead focus on the second “if.”

The second, and more crucial, “if” is the IMF report’s acknowledgment that stimulative effects of infrastructure investment vary according to the efficiency with which borrowed dollars are spent: “If the efficiency of the public investment process is relatively low — so that project selection and execution are poor and only a fraction of the amount invested is converted into productive public capital stock — increased public investment leads to more limited long-term output gains.” That’s a huge caveat. Long-term costs and benefits of major infrastructure projects are devilishly difficult to measure precisely and always have been. …Today we have “bridges to nowhere,” as well as major projects plagued by cost overruns and delays all over the world — and not necessarily in places you think of as corrupt. Germany’s still unfinished Berlin Brandenburg airport is five years behind schedule and billions of dollars over budget, to name one example. Bent Flyvbjerg of Oxford’s Said Business School studied 258 major projects in 20 nations over 70 years and found average cost overruns of 44.7 percent for rail, 33.8 percent for bridges and tunnels and 20.4 percent for roads.

Amen. Governments are notorious for cost overruns and boondoggle spending.

It happens in the United States and it happens overseas.

It’s an inherent part of government, as Lane acknowledges.

In short, an essential condition for the IMF concept’s success — optimally efficient investment — is both difficult to define and, to the extent it can be defined, highly unrealistic. As Flyvbjerg explains, cost overruns and delays are normal, not exceptional, because of perverse incentives — specifically, project promoters have an interest in overstating benefits and understating risks. The better they can make the project look on paper, the more likely their plans are to get approved; yet, once approved, economic and logistical realities kick in, and costs start to mount. Flyvbjerg calls this tendency “survival of the unfittest.” …Governments that invest in infrastructure on the assumption it will pay for itself may find out that they’ve gone a bridge too far.

Or bridge to nowhere, for those who remember the infamous GOP earmark from last decade that would have spent millions of dollars to connect a sparsely inhabited Alaska island with the mainland – even though it already had a very satisfactory ferry service.

Let’s close with two observations.

First, why did the IMF flip-flop in such a short period of time? It does seem bizarre for a bureaucracy to publish an anti-infrastructure spending study in August and then put out a pro-infrastructure spending study two months later.

I don’t know the inside story on this schizophrenic behavior, but I assume that the August study was the result of a long-standing research project by one of the IMF’s professional economists (the IMF publishes dozens of such studies every year). By contrast, I’m guessing the October study was pushed by the political bosses at the IMF, who in turn were responding to pressure from member governments that wanted some sort of justification for more boondoggle spending.

In other words, the first study was apolitical and the second study wasn’t.

Not that this is unusual. I suspect many of the economists working at international bureaucracies are very competent. So when they’re allowed to do honest research, they produce results that pour cold water on big government. Indeed, that even happens at the OECD.

But when the political appointees get involved, they put their thumbs on the scale in order to generate results that will please the governments that underwrite their budgets.

My second observation is that there’s nothing necessarily wrong with the IMF’s theoretical assertions in the August study. Infrastructure spending can be useful and productive.

It’s an empirical question to decide whether a new road will be a net plus or a net minus. Or a new airport runway. Or subway system. Or port facilities.

My view, for what it’s worth, is that we’re far more likely to get the right answers to these empirical questions if infrastructure spending is handled by state and local governments. Or even the private sector.

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Since I’m an economist, I generally support competition.

But it’s time to admit that competition isn’t always a good idea. Particularly when international bureaucracies compete to see which one can promote the most-destructive pro-tax policies.

For instance, I noted early last year that the bureaucrats at the Organization for Economic Cooperation and Development (OECD) were pushing a new scheme to increase the global tax burden on the business community.

Then I wrote later in the year that the International Monetary Fund was even more aggressive about pushing tax hikes, earning it the label of being the Dr. Kevorkian of the world economy.

That must have created some jealousy at the OECD, so those bureaucrats earlier this year had a taxpalooza party and endorsed a plethora of class-warfare tax hikes.

Now the IMF has responded to the challenge and is pushing additional tax increases all over the world.

For example, the bureaucrats want much higher taxes on energy use, both in the United States and all around the world.

This chart from the IMF shows how much the bureaucracy thinks that the tax should be increased just on coal consumption.

The chart doesn’t make much sense, particularly if you don’t know anything about “gigajoules.” Fortunately, Ronald Bailey of Reason translates the jargon and tells us how this will impact the average American household.

The National Journal reports that the tax rate would be $8 per gigajoule of coal and a bit over $3 per gigajoule of natural gas. Roughly speaking a ton of coal contains somewhere around 25 gigajoules of energy, which implies a tax rate of $200 per ton. …The average American household uses about 11,000 kilowatt hours annually, implying a hike in electric rates of about $1,100 per year due to the new carbon tax. Since the average monthly electric bill is about $107, the IMF’s proposed tax hike on coal would approximately double how much Americans pay for coal-fired electricity. A thousand cubic feet (mcf) of natural gas contains about 1 gigajoule of energy. The average American household burns about 75 mcf of natural gas annually so that implies a total tax burden of $225 per residential customer.

To be fair, the IMF crowd asserts that all these new taxes can be – at least in theory – offset by lower taxes elsewhere.

…we are generally talking about smarter taxes rather than higher taxes. This means re-calibrating tax systems to achieve fiscal objectives more efficiently, most obviously by using the proceeds to lower other burdensome taxes. The revenue from energy taxes could of course also be used to pay down public debt.

Needless to say, I strongly suspect that politicians would use any new revenue to finance a larger burden of government spending. That’s what happened when the income tax was enacted. That’s what happened when the payroll tax was enacted. That’s what happened when the value-added tax was enacted.

If you think something different would happen following the implementation of an energy tax, you win the grand prize for gullibility.

But let’s give the IMF credit. The bureaucrats are equal opportunity tax hikers. They don’t just want higher taxes in the United States. They give the same message everywhere in the world.

Here are some excerpts from an editorial about Spanish fiscal policy in the Wall Street Journal.

Madrid last month cut corporate and personal tax rates, simplified Spain’s personal-income tax system and vowed to close loopholes. That’s good news… So leave it to the austerity scolds at the International Monetary Fund to call for tax increases. …Specifically, the Fund wants Spain to raise value-added taxes, alcohol and tobacco excise taxes, tourism taxes, and various environmental and energy levies: “It will be critical to protect the most vulnerable by increasing the support system for them via the transfer and tax system.”

Gee, I suppose that we should be happy the IMF didn’t endorse higher income taxes as well.

The good news is that the Spanish government may have learned from previous mistakes that tax hikes don’t work.

Rather than heed this bad advice, Prime Minister Mariano Rajoy and Finance Minister Cristobal Montoro are cutting government spending and eliminating wasteful programs to reduce pressure on the public fisc. Public spending amounted to 44.8% of GDP in 2013, which is still too high but down from 46.3% in 2010. The government projects it will fall to 40% by 2017.Madrid has also made clear that it believes private growth is the real answer to its fiscal woes. …In other words, economic growth spurred by low taxes and less state intervention yields more revenue over time. If Mr. Montoro can pursue the logic of that insight, there’s hope for Spain’s beleaguered economy.

I’m not overly confident about Spain’s future, but it is worth noting that, according to IMF data, government spending has basically been flat since 2010 (after rising by an average of about 10 percent annually in the previous three decades).

So if the politicians can maintain fiscal discipline by following my Golden Rule, maybe Spain can undo decades of profligacy and become the success story of the Mediterranean.

Let’s hope so. In any event, we know some Spanish taxpayers have decided that they’re tired of being fleeced.

We have one final example of the IMF’s compulsive tax-aholic instincts.

Allister Heath explains that the bureaucracy is pushing for a plethora of new taxes on the U.K. economy.

The IMF wants an increase in the VAT burden.

…the IMF wants to get rid or significantly reduce the zero-rated exemption on VAT, which covers food, children’s clothes and the rest. While it is true that the exemptions reduce economic efficiency, ditching them would necessitate a big hike in benefits and a major uplift in the minimum wage, which would be far more damaging to the economy’s performance and ability to create jobs for the low-skilled. It’s a stupid idea and one which would destroy any government that sought to implement it, with zero real net benefit. It would be a horrendous waste of precious political capital that ought instead to be invested in real reform of the public sector.

And an increase in energy taxes.

The report also calls for a greater reliance on so-called Pigouvian taxes, which are supposed to discourage externalities and behaviour which inflicts costs on others. It mentions higher taxes on carbon and on congestion as examples. But what this really means is that the IMF is advocating a massive tax increase on motorists, even though there is robust evidence which suggests that they already pay much more, in the aggregate, than any sensible measure of the combined cost of road upkeep and development, pollution and congestion.

And higher property taxes.

It gets worse: these days, one cannot read a document from an international body that doesn’t call for greater taxes on property. This war on homeowners is based on the faulty notion that taxing people who own their homes doesn’t affect their behaviour, which is clearly ridiculous. This latest missive from the IMF doesn’t disappoint on this front: it calls for the revaluation of property for tax purposes, which is code for a massive increase in council tax for millions of homes, especially in London and the home counties.

Understandably, Allister is not thrilled by the IMF’s proposed tax orgy.

The tax burden is already too high; increasing it further would be a terrible mistake. The problem is that spending still accounts for an excessively large share of the economy, and the political challenge is to find a way of re-engineering the welfare state to allow the state to shrink and the private sector to expand. The model should be Australia, Switzerland or Singapore, countries that boast low taxes and high quality services.

And I particularly like that Allister correctly pinpoints the main flaw in the IMF’s thinking. The bureaucrats look at deficits and they instinctively think about how to close the gap with tax hikes.

That’s flawed from a practical perspective, both because of the Laffer Curve and because politicians will respond to the expectation of higher revenue by boosting spending.

But it’s also flawed from a theoretical perspective because the real problem is that the public sector is far too large in all developed nations. So replacing debt-financed spending with tax-financed spending doesn’t address the real problem (even if one heroically assumes revenues actually materialize and further assumes politicians didn’t exacerbate the problem with more spending).

Here’s a remedial course for politicians, international bureaucrats, and others who don’t understand fiscal policy.

P.S. Wise people have speculated that international bureaucrats are quick to urge higher taxes because they don’t have to pay taxes on their lavish salaries.

P.P.S. This isn’t the first time the IMF has proposed massive tax hikes on energy consumption.

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If some special-interest lobbies give money so that a left-wing group can propose something like a value-added tax to finance bigger government, that’s no surprise.

And if a bunch of subsidy recipients donate money to Barack Obama or some other statist politician because they hope for new programs, that’s also standard procedure in DC.

I’ll fight these initiatives, of course, but I don’t get overly upset when these things happen.

What does drive me crazy, though, is when proponents of big government want to use my money to subsidize left-wing activism.

This is why I’m against taxpayer handouts for groups such as Planned Parenthood and AARP. If they want to endorse bigger government, get voluntary contributions to push that destructive agenda.

All I ask is that you don’t coerce me to subsidize statism.

I get especially upset when international bureaucracies use my money to push for bigger government. And it the past few days, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have delivered a one-two punch for statism.

And they used our money!

The IMF advocated for more government in their recent survey of the United States.

The recent expansion of Medicaid and the increase in health insurance coverage have been concrete steps whose effect on poverty and health outcomes should become more evident over time. An expansion of the Earned Income Tax Credit—to apply to households without children, to older workers, and to low income youth—would be another effective tool to raise living standards for the very poor. …the minimum wage should be increased. …Action is also needed to achieve a sustained increase in both Federal and State spending on infrastructure paid for by…additional revenues, and an expansion of financing sources… The Federal gas tax should be significantly increased. …Some progress has already been made…through implementation of the Affordable Care Act… Addressing the expected depletion of the social security trust fund will require…increases the ceiling on taxable earnings for social security… In addition, the U.S. should introduce a broad-based carbon tax and move toward the introduction of a Federal-level VAT.

Keep in mind, by the way, that the IMF already has endorsed a giant energy tax on American consumers, as well as a value-added tax.

Though, to be fair, they’re not discriminating against Americans. The IMF has a long track record of pushing for bad policy in other nations.

Meanwhile, the statists at the OECD also are pushing for a wide range of bad policies.

The report encourages close cooperation between businesses and government… The Survey highlights that income inequality is high in the United States. …While this cannot be improved easily, the report praises reforms recently adopted or being considered: health care reform will help vulnerable families access high-quality care; OECD Carbon Obamadealing with mental health will help reduce job loss and disability; preschool education would be a good investment in children’s future and help middle-class parents; and paid maternity leave would help working women. …The OECD recommends introducing an adequate pricing of greenhouse gas emissions and supporting innovation in energy saving and low carbon technology.

Unsurprisingly, the OECD endorses a panoply of tax hikes to enable a bigger and more bloated public sector.

Act toward rapid international agreement and take measures to prevent base erosion and profit shifting… Make the personal tax system more redistributive… The federal government could…develop a social insurance programme for paid leave for all workers funded by a small increase in the payroll tax… Taxing the extraction of non-renewable resources offers the potential to raise revenue… Increase reliance on consumption taxation.

The OECD favors higher taxes for everyone, so it’s not as if they’re targeting Americans.

But it’s nonetheless irritating when a bunch of pampered international bureaucrats take money from American taxpayers and then use those funds to produce “research” calling for even higher tax burdens.

Especially when those bureaucrats are exempt from the income tax!!!

And keep in mind that this isn’t the first time that the OECD has acted as a public relations team for Obama’s statist agenda.

P.S. The one silver lining to the dark cloud of the IMF is that the bureaucrats inadvertently generated some very powerful evidence against the VAT.

P.P.S. And the OECD accidentally produced some data showing the poor results of governments schools in the United States, so that’s a bit of consolation as well.

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