Wednesday, May 29, 2013

Chris Dillow — Taxes, Norms & Belief Equilibria

Here's another recent finding in experimental economics:
We analyze how tax evasion is affected when the same income is earned without any effort, or with a moderate or high level of effort.We find that subjects who have invested high levels of time and effort evade significantly more taxes.
"In other words, people who feel more entitled to their income, by virtue of sweating for it, are more likely to try to keep it.
You might think this unsurprising."
But I think it highlights something I've said before - that neoliberalism is performative; it doesn't just describe the world, but creates it. 
One claim of neoliberalism is that individuals are entitled to their incomes, as these are the result of work and contribution to society rather than to, say, luck or accidents of history. If people believe this, then they will have lower tax morale, and so will try to dodge taxes either legally or not. The neoliberal claim that higher tax rates reduce revenues will therefore be true. But this will be only so by virtue of people believing they are entitled to their incomes. Neoliberalism then becomes a self-fulfilling belief equilibrium....
This poses the questions: is it possible to shift the belief equilibrium away from the neoliberal to the social democratic one, and if so how? 
Stumbling and Mumbling
Taxes, Norms & Belief Equilibria
Chris Dillow | Investors Chronicle (UK)

8 comments:

F. Beard said...

This poses the questions: is it possible to shift the belief equilibrium away from the neoliberal to the social democratic one, and if so how? Chris Dillow

I used to wonder how people could repeatedly fail at business. "Where do they keep getting the necessary capital?", I thought. But I wonder no longer: If one has even a little capital of his own (or perhaps none) and a plausible business plan to generate cash flow (and until recently, a light skin tone: Google "redlining") then a bank will create new, temporary money ("credit")and lend it to you! There's no need to save or pay honest interest rates for other people's savings or create a common stock company; just borrow from a bank and legally steal your neighbor's purchasing power!

There's your antidote to neo-liberal self-righteousness - many of them (most, almost all?) have gotten wealthy using stolen purchasing power.

Roger Erickson said...

F. Beard, that's no antidote, just a repetition of the same named cause.

It also seems that jurists sympathize with a crook who had to really work hard at stealing something.

Even jurors appreciate the sweat equity crooks put into thieving. There's a deep seated feeling that people should be compensated for man hours of effort - even if misapplied. Until it gets personal or violent. Then you just execute the hard worker for his effort. :(

F. Beard said...

The truth is an antidote - to lies:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford

Roger Erickson said...

F.B. the point is that antidotes still have to be applied;

there's always another step after knowledge, and it's called action

requires courage, experience and, most of all, PRACTICE

Greg said...

It seems one of the flaws here is thinking that we control our own income. In fact everyones income is the result of someone elses spending decision. If this werent true then boycotts couldnt be effective.

So if we dont control our incomes what is the proper attitude towards our income? Grateful.......not entitled.
Regardless of how much effort one applies it is still everyone else that controls our incomes. We still have to make ourselves wanted by others or we will have no income in our modern economy.

Now, I certainly have questions about whether our current "income" tax system is best. It does, in a way, punish the work required to receive income, which isnt ideal because that work requires learning how to appeal to others, but we could also define income more broadly to include return on stocks traded in secondary markets and other purely financial transactions. This would make those activities less lucrative

Ramanan said...

Btw Tom ... you wouldn't have missed - but just making sure you read this:

https://twitter.com/Noahpinion/status/340144437030187008

Tom Hickey said...

Yeah, Smith's hopeless.

Did you see this?

'DSGE + Financial Frictions = Macro that Works?' by Mark Thoma

After the crisis, they come up with an ad hoc DSGE fix to "predict" it.

"What do you mean we didn't get it? See. We got it right in hindsight."

Great science, that.

Ramanan said...

Yeah saw that Tom. Hilariously Comical those posts on DSGE were!