Ricardo Rules OK?

This week’s newspaper headlines have been dominated by the £2.7 bn tax bribe (whoops .... tax adjustment) announced by the embattled Chancellor Alastair Darling to compensate for the fiasco over the abolition of the 10% starting rate of income tax. The FT this morning linked the economic effects of this tax cut to one of the most celebrated and controversial ideas of moden macroeconomics - Ricardian equivalence theory ..... how sexy does macroeconomics get!

Two weeks to the RES deadline!

There are two weeks until the final deadline for submitting essays for the 2008 RES competition. Here at school we had our own internal competition to give students a chance to win a small prize for an early entry. I thought I would give a flavour of the topics covered

Open source software
Feed-in-Tariffs
Economics of mass collaboration
Micro-finance
Lump sum taxes
Free trade
Carbon trading
Globalization
Welfare and happiness policies
Flat rate taxes
Auctions

There were certainly some interesting essays from the two dozen that I read - it is so much fun reading an essay without having to give it a mark or apply some dodgy assessment criteria to it. Hopefully my students will find a bit of time away from revision to do a little more reading for their essays and work on their style and arguments before the 12th May deadline arrives!

Revision: Progressive and regressive taxes

A row has been brewing within the Labour Party about the decision by Gordon Brown when he was Chancellor – confirmed in the 2008 Budget – to scrap the 10 per cent ‘starting rate of income tax’ partly as a way of reducing the basic rate of income tax from 22% to 20% (from April 2008). One of the related issues to this is how the income tax system affects the final distribution of income in the UK and, in particular, the distinction between progressive and regressive taxes. This revision note is for AS and A2 students and considers amongst other ideas, the progressivity of the UK income tax system.

Revision note article
Revision_Progressive_Regressive_Taxation.pdf

Tim Harford takes a dig at green taxes

VAT on gas and electricity too low? Excise duty on petrol and diesel too high? Yes says Tim Harford in his Undercover Economist slot this week. “Green taxes have been fussy and poorly-targeted, by turns too stringent and too lax ... This government – like most governments – likes to use the tax system as a way of expressing its moral views: hooray for pensioners, down with Jeremy Clarkson. Cheap politics for them, less so for the taxpayer.”

The rest of the article is here

Success of the Irish plastic bag tax

Green taxes are frequently criticised for being ineffective in changing behaviour, expensive to operate, inequitable across communities and sometimes a combination of all three. But the tax levied on plastic bags in Ireland five years ago appears to be one of the more enlightened public policy initiatives of recent times. This New York Times feature visits the emerald isle and finds strong public support for the measure and a change in attitudes to piling up the plastic bags when we get to the end of the check-out queue.

The London Pollution Charge

The London Congestion Charge is to tax more highly polluting vehicles more in a bid to reduce pollution. From October 2008, drivers of many sports cars, MPVs and 4x4s will pay £25 per day rather than the current level of £8. In addition, the charge will be abolished for the lowest polluting vehicles.

The Congestion Charge is generally regarded as a success, and environmental groups are applauding the new structured charge as an effective way of shifting drivers of ‘gas guzzlers’ into cleaner cars or onto public transport. The CC is a hypothecated tax in that the revenue it raises is, in theory, used to fund improvements to public transport.

What, exactly, does the CC aim to achieve? It is called a congestion charge, but the new structured tax appears to be more focused on reducing CO2 emissions. So should it really be called the Pollution Charge?