Economics

Polanyi and Keynes on the idea of ‘self-adjusting’ markets

Published by Anonymous (not verified) on Sat, 01/12/2018 - 1:28am in

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Economics

Paul Krugman has repeatedly over the years argued that we should continue to use maistream economics hobby horses like IS-LM and AS-AD models. Here’s one example: So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we […]

Locating tax risk – the way to tackle illicit financial flows

Published by Anonymous (not verified) on Thu, 29/11/2018 - 10:27pm in

These are the slides for the talk I presented in Beirut this afternoon:

Locating tax risk - the way to tackle illicit financial flows

1 There are illicit financial flows

  • This is a fact
  • It’s also true we will never stop them entirely
  • This means everything we say today is about risk mitigation

2 The questions we need to address

  • What are the risks?
  • How do they arise?
  • What can actually be done about them?
  • Why is it worth tackling them?
  • Why is it worth expending political capital on this?
  • What are the tools we need to use?

3 What is tax for?

  • It is assumed that pays for government expenditure.
  • This is at best only partly true
  • Government spending can also be funded by:
    • Borrowing
    • Aid
    • Local currency creation
  • So while may have an important role in the funding cycle of government that is not its only use

4 Tax has other uses:

  • Creating macroeconomic control of an economy
  • This is through fiscal macroeconomic management
  • Underpinning the value of the local currency by requiring its use to settle tax liabilities
  • Income and wealth redistribution
  • Repricing market failure
  • Incentivising socially beneficial activities

5 The Joy of Tax

  • Put all these facts together and you have what I call The Joy of Tax
  • Tax is the single most powerful peaceful instrument a government has to shape the society that it controls
  • The challenge of illicit financial flows is that they undermine any government’s chance of achieving that goal
  • The big challenge of illicit financial flows is not then the money alone - however important that is
  • The big challenge of illicit financial flows is that they challenge the ability of the state to deliver a whole range of policy options that it wants to create on behalf of those who live in the jurisdiction for which a government is responsible

6 How to tackle this?

  • The choice to date has been to blame some now familiar villains
    • Organised crime
    • Those who are corrupt
    • Multinational corporations
    • Tax havens
  • The response is
    • Anti-money laundering measures
    • OECD BEPS
    • Country-by-country reporting
    • Calls for unitary taxation
  • Trust me, I buy them all
  • But the time has come to go further

7 We need new tools to identify and tackle tax abuse

  • There are two key new tools:

1.Measuring tax gaps

2.Undertake tax spillover assessments

  • These require political will
  • And they require funding - if necessary from the IOs to help achieve this – which is something I am explicitly calling for

8 The tax gap (1)

  • The tax gap is a measure of the tax that could be but is not collected by a government
  • All countries have a theoretical tax yield they could collect based on current GDP and law
  • They don’t get it because of the tax gap, which comes in five parts

1 The cost of tax bases not taxed, such as wealth (A)

2 The cost of tax allowances and reliefs a government grants (B)

  • Take these two off the theoretical tax base calculated on GDP and you get the technical tax yield. Then deduct

3 Tax evasion (C)

4 Tax avoidance (D)

5 Tax bad debt (E)

  • And you get to tax actually paid

9 The tax gap (2)

  • The tax policy gap is
  • Tax bases not taxed + tax reliefs given away
  • = A + B
  • The tax compliance gap is
  • Tax evasion + tax avoidance + tax evasion
  • = C + D + E
  • The total tax gap is:
  • Theoretical tax base based on GDP
  • Take away A + B + C + D + E
  • = Tax actually paid
  • Every government had to know these figures, I suggest, or they’re not in control of their economy

10 Tax spillovers

  • Tax spillovers assess the likelihood that one part of a tax system causes harm to another part of a tax system, either domestically or internationally
  • Tax spillovers happen domestically and internationally
  • They involve all taxes, but especially direct ones
  • And they involve the administration of tax as well as the taxes themselves
  • The IMF has tried to appraise them quantitatively but this has proved to be very hard
  • Professor Andrew Baker of Sheffield University and I now propose a qualitative measure

11 Qualitative tax spillovers - the assessment grid

12 Qualitative tax spillovers - the process

  • Four domestic taxes and four tax admin systems are marked for the risk that they create domestically first and internationally second
  • Then the domestic tax system is appraised for the risks imposed on it from elsewhere
  • The higher the score the bigger the risk
  • The colour coding simply helps identify the big risks – they are in red
  • The process is designed to identify the biggest targets for reform

13 Qualitative tax spillovers –our suggestion

  • It’s our suggestion every country could and should do a qualitative tax spillover assessment
  • Then they will know what reform is really needed
  • And how effective it might really be
  • This is the way for all countries – and not just OECD ones – to reclaim the agenda on this issue
  • We think it’s time to use a systematic tool for each country to create its own demands for reform

The real value of analogue economies

Published by Anonymous (not verified) on Thu, 29/11/2018 - 7:19am in

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Economics

Modelling by the construction of analogue economies is a widespread technique in economic theory nowadays … As Lucas urges, the important point about analogue economies is that everything is known about them … and within them the propositions we are interested in ‘can be formulated rigorously and shown to be valid’ … For these constructed […]

Three economic challenges for Australia

Published by Anonymous (not verified) on Wed, 28/11/2018 - 7:41am in

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Economics

First, there is a need for a new narrative. From 1901 to the late 1970s, the prevailing view was that government should have a dominant role in the economy.

Two of the Candidates for the Fifty Pound Note: Alan Turing and Thatcher

Mike today put up a piece about the two candidates the government is considering sticking on the back of the fifty pound note. They are Alan Turing, the wartime mathematical genius, who broke the enigma code and helped shorten the war. One of the machines Turing designed, or helped design to break the code was programmable, and Turing is respected as one of the founders of modern computing.

He was, however, gay at a time when it was very much against the law. He was convicted of gross indecency, and chemically castrated, which led to him taking his own life.

Thatcher, on the other hand, is the woman whose policies have inflicted nothing but misery on this planet for nearly forty years. She started the Tories’ and New Labour’s privatization programme, including that of the NHS, the destruction of the welfare state and deliberately made signing on for unemployment benefit as humiliating as possible, in order to deter the poor from doing so. She was also determined to break the unions, manufacturing a strike by the NUM through the gutting of British coalmining, purely to break the union that had brought down Heath’s government years before. And she used the police has her army to attack and beat the miners, aided by a complicit media, including the Beeb. These ran the footage of the strike at Orgreave colliery backwards to make it appear that the miners were attacking the police, while it was the other way round.

Exactly as the great peeps on Twitter, whose comments Mike quotes in his piece about it.

Ah, but Thatcher was a chemist! She worked for Walls, inventing the process that injects air into ice cream to make it appear that there’s more of it than there is.

Well, if the government wants to put scientists, and especially women scientists, on the fifty pound note, I’ve got a few suggestions of my own. Female scientists they could choose include:

Dorothy Hodgkin. She’s the woman who should have got the prize for discovering the structure of DNA, as Crick and Watson were looking completely in the wrong direction until they walked past the door of her lab, and heard her talking about her work. She lost the Nobel to them, but did get another prize for another great discovery she made. If she hasn’t been already, it’s the right time to have her commemorated on our folding stuff.

Jocelyn Bell Purnell. She was the astronomer, who discovered pulsars. These are tiny, dense stars at the end of their lives, which send out a radio signal. They spin very quickly, so that the signal sweeps across the sky, so that they appear as a regular beat. At first it was believed that they might be signals from an extraterrestrial civilization. Some astronomers also believe that, while they’re natural, space-traveling aliens could use them as lighthouses to navigate their way across the Galaxy.

Helen Sharman. She’s another chemist, though at Mars, rather than Walls. But she is know for being the first Brit into space when she joined the British-Russian space mission to Mir in the 1980s. Since then, she’s been something of a science educator, appearing at events to encourage children to take up science.

Caroline Herschel. She’s the brother of John Herschel, and daughter of William. She and her brother were astronomers in 18th century Bath, making telescopes and discovering new stars.

I’m sure there are many others. These are all astronomy and space related, because that’s the area I’m interested in and know most about. All of these ladies have a better claim to be on the Fifty pound note than Thatcher.

But if you want another bloke, how about Dr. Jacob Bronowski. He was another mathematician working during the War. He was also the presenter of the 1970s Beeb science blockbuster, The Ascent of Man. He was also a Fabian socialist with a hatred of war. In The Ascent of Man he makes his view of armed conflict very clear by saying: ‘War is theft by other means’. It’s parody of Clausewitz’s famous phrase ‘War is politics by other means’. Bronowski’s description of war is very true, especially now when we’ve seen that the humanitarian interventions in the Middle East have all been about conquering them in order to despoil their oil reserves, loot their state industries and stop any kind of Arab and Islamic support for Israel. And Iran appears to be next on the hit list.

However, I do like the suggestion of Raab C. Brexit that it should be the sage of Govan, Rab C. Nesbitt on the notes. Having his mug staring out at them might just put a few of the really filthy rich off when they get it out to pay for their bottle of Krug.

Remember, it was Nesbitt who predicted that there’d be a war between the Toffs and the Scum. The Toffs would win initially, because they’ve got the army. But the Scum would be the victors, because they have all the Rottweilers.

See also Mike’s article at: https://voxpoliticalonline.com/2018/11/27/whose-face-do-you-want-on-the-back-of-the-50-note-alan-turing-or-margaret-thatcher/

Brexit is an issue too deep to go away: it will be the theme of English politics for decades to come

Published by Anonymous (not verified) on Tue, 27/11/2018 - 6:51pm in

A commentator asked on the blog overnight whether I might change my mind on Brexit in due course. After all, he pointed out, I have not always been the biggest fan of the EU. And, he argued, it is quite possible we will muddle through Brexit and then reach the socialist promised land some on the left think possible. Since it’s always wise to think you might be wrong, I have given this some thought.

I am not convinced I will change my mind. I accept we will muddle through Brexit. Let’s be quite clear; whilst I think it will be a tough experience that could be a nightmare in the case of hard Brexit, I have no doubt that people will continue to live in the UK, and most will be able to provide for themselves, even if not quite as well as if we’d stayed. Those who will struggle will be those who always seem to suffer - and who both Labour and Tories (but especially the latter) have not been good at protecting for a long time. That is what worries me.

The fact that I cannot see the Union surviving Brecit for long means I worry more about the fate of those on lower incomes in a Tory dominated England and Wales.

And I see the chance of the socialist dream in England and Wales as very limited in that case. In Northern Ireland and Scotland the chances are at least higher, although Northern Ireland will still take time to heal divisions and the SNP will have to abandon the Growth Commission or neoliberalism will still be having a field day there.

So, overall, I see little political gain from any of this. At least, not in England and Wales.

And I see little economic gain anywhere.

As for the broader politics. I am at heart a European. Of course the fact that I have allegiance to two European countries fuels that feeling. But it is more than that. Maybe WW2 was just too close when I was being brought up to be ignored: the wounds were very obvious in my parents’ generation. So were the stories. So was the fear of what might have been. The feeling of ‘never again’ was real. It remains with me. And imperfect as it is  - and I acknowledge all its faults - the EU is a means of saying ‘never again’. As it challenges Hungary and Poland now in ways that could not otherwise be achieved it does that. Let’s not ignore that when we also note its failings in Greece and now Italy.

So, will I regret leaving that union, which I believe is deeply wounded by our departure? Yes, I do. And yes, I think I will continue to do so. In which case I do not think I will change my mind. Instead, as I discussed with my eldest son last night as the dog witnessed yet another political discussion during his evening walk, I think on which side people stood now will define politics in thios country for at least two geenrations, and could well result in new political alignments as wounds across this divide are not healed.

Which is why May’s letter to the country saying we should all move on is absurd. Ireland has taken a century to get over its issues of the early 1920’s. We may not take quite that long, but to pretend that this issue will go away soon is absurd. Brexit is, and will remain, the major political theme of our times. And if we leave the debate about rejoining will be ever recurring. This one is going to run and run. And it is not economics or short term politics that will solve it. This is about deep world views - and none to do with neoliberalism at all. This is about embracing the other, or not. And that’s an issue too deep to go away. It’s where politics now is.

The tax gap and how to tackle it

Published by Anonymous (not verified) on Tue, 27/11/2018 - 6:24pm in

I am off to Beirut this morning to speak at a UN conference. The theme is tackling illicit financial flows. I will be talking the tax gap and illicit financial flows on Thursday. In the meantime this is the note I sent in advance, a few weeks ago. I will blush my slides on Thursday. In the meantime it’s a day of travel. And with luck an hour or two to see the nplace, maybe, over the next couple of days.

The tax gap and how to tackle it

A presentation to the United Nations Economic and Social Commission for Western Asia International Conference on Financing Sustainable Development, Beirut November 2018

Richard Murphy, Professor of Practice in International Political Economy, City, University of London [ii]

 __________________________________________

 1 What is the tax gap problem and what are its consequences?

Illicit Financial Flows (IFF) are a multifaceted problem. The flows in question range from the proceeds of numerous varieties of crime to illicit funds resulting from the evasion of numerous forms of regulation of which the most common is taxation. The problem is an issue at a number of micro, mezzo and macro levels.

At the micro level the issues are:

  • Identifying crime;
  • Tracking the proceeds of crime;
  • Delivering taxpayer compliance;
  • Enforcing regulation;
  • Preventing corruption;
  • Protecting those abused.

At the mezzo level, which has been too often ignored, the issues are:

  • Protecting communities impacted by IFFs and related activity;
  • Maintaining social cohesion in the face of the challenges of inequality that IFFs create;
  • Delivering free and competitive markets when IFFs create an environment where effective markets frequently cannot exist;
  • Preventing the development of criminogenic environments;
  • Ensuring that the agencies of law enforcement are not just effective but are not corrupted.

At the macro level the issues are:

  • The economic cost of the breakdown of trust in society;
  • The economic cost of crime;
  • The cost of all forms of enforcement;
  • The drain of the shadow economy and the cost of the interface between it and the recorded economy.

There are other issues to consider as well. In particular there is the loss of tax. This involves consideration of:

  • The loss of tax revenues;
  • The undermining of tax morale;
  • Lost government programmes resulting from increased government deficits curtailing scope for activity;
  • The cost of failed social and economic policy that is ineffectively delivered because the tax system is not fully functional.

There is also the cost of the loss of economic control to consider:

  • The loss of effective fiscal policy;
  • The cost of multiple currencies circulating in an economy, which usually happens when the shadow economy is large;
  • The loss of confidence in government itself.

This last point is often overlooked. IFFs undermine faith in the state, and impose a cost because of the limitation on its remit. Nothing is beyond corruption by IFFs.

2 How much is lost?

The scale of the tax losses requires us to estimate:

  • How much of GDP is recorded;
  • By corollary, how much of GDP is unrecorded;
  • What tax is lost because it relates to activity that would never have appeared in GDP e.g. because it relates to capital flows and not income, and therefore falls out of GDP based tax gap estimates;
  • What the effective tax rate might be on the income not recorded within GDP, which might be the prevailing tax rate but also might not be: tax rates might be lower, for example, if everyone did pay the tax that they owed;
  • Data on how much tax is actually paid, where my current research suggests that this is surprisingly hard to secure.

It is not apparent that all these questions can be answered. In many countries we are at present working at the limits of knowledge and any estimate offered is decidedly approximate. That said, there is some evidence that can be considered:

  • Although the bases of calculation are quiet different MIMIC (multiple indicator; multiple cause) models of the shadow economy in the EU are at present producing estimates of the shadow economy quite similar in scale to those prepared using estimated VAT losses calculated for the European Commission;
  • Those losses are at present remarkably similar to the scale of loss I estimated[iii] for the EU in 2012.
  • If that European estimate remains reasonable then I suggest that the worldwide data is also similar to that I presented[iv] in 2011. Then I estimated that total tax evasion amounted to 5.07% of worldwide GDP. If that is still the case then tax evasion worldwide might have cost US$4 trillion in lost revenues in 2017 based on World Bank GDP estimates. Data from the IMF and others would suggest that corporate tax avoidance of maybe US$500 million might be added to this sum, which indicates it is of a lesser scale of significance.

3 What can be done about this issue?

The critical facts on which most would agree are that:

  • Whatever the weaknesses in the estimates the scale of the IFF and tax evasion problem is economically significant and has a serious impact on development;
  • The illegal activity that gives rise to these flows - which could amount to nearly 20% of world GDP - is deeply disruptive to well-being for billions of people around the world;
  • Sustainable development; stable and efficient markets; effective government, efficient fiscal policy, the rule of law and secure societies cannot be maintained of this problem persists.

What then can be done? First, we need to improve the quality of our data:

  • This requires better GDP data;
  • It also requires more official candour than we enjoy at present about the scale of the shadow economy that appropriate GDP data might reflect;
  • In turn that requires better estimation of the shadow economy itself because there is still little agreement on, and too little study of, this issue despite it being quite literally one of the biggest issues in economics.

Second, we need better tax data. My research is showing that we do not know enough about what is paid where, and that there are major inconsistencies between data from various agencies. These are hard to explain.

Third, we need more data on how many taxpayers there are: we simply do not know in too many cases.

Fourth, we need to improve tax gap methodologies. Most that we have are heavily microeconomically focused. This is of use if the aim is to measure the efficiency of particular jurisdictions tax authorities, but the goal of tax gap measurement is much bigger than that. We do therefore need to develop and refine macroeconomic measures of the tax gap.

Fifth, we also need to understand how much tax is given away by governments in the form of allowances, reliefs, concessions, special measures, and so on, all of which mean that the taxable capacity of countries is forgone without necessarily securing matching economic benefit in exchange. The approach to the tax gap has to be about creating optimal tax systems, and not just beating crime, however important that is.

Sixth, we need to think much more broadly about this issue. I still meet people who think that most tax evasion involves tax havens and that most tax loss is as a result of the activities of multinational corporations. Both are significant, and both are more significant to developing countries than they are to developed countries, but it is also true that around the world domestic tax evasion is a much bigger issue when we look at the total sum of illicit financial flows. I stress the point: IFFs do not need to flow across international borders to be illicit, and the problems within domestic economies have to be identified as well as those that exist internationally. In other words, as important as country-by-country reporting; the automatic exchange of information from tax havens and registers of beneficial ownership of corporations throughout the world might be (and I stress that they are) they will not by themselves solve all the problems that create the tax gap.

Seventh, it remains the unfortunate case that tax evasion is not always considered a predicate offence for money laundering purposes, and that even when it is the standards used to determine whether prosecution is appropriate, or not, are inconsistent and inconsistently applied. Much more work is required in this area as long experience has indicated that prosecution for tax evasion is very often the easiest way in which those participating in criminal activity can be pursued.

4 Where to go from here?

I have already outlined some of the detailed tasks that need to be addressed if IFFs are to be appropriately tackled but there is one more issue to mention.

It is fair to note that the issue of tax justice has come a long way since I was one of the founders of the Tax Justice Network in 2003. Back then there were a tiny handful of us who thought that tax could be a significant issue for the development. I am delighted that so many now agree. But, in my opinion the time has come to identify the next big issues that we need to address if we are to make further progress in tackling tax injustice.

Campaigners concentrated on the low hanging fruit when we started work in this area. So, for example we looked at tax havens, corporate tax abuse, and the obvious problem of secrecy that has been so effectively highlighted by the Financial Secrecy Index over the years. However, that did mean that insufficient attention was given to domestic tax evasion. And in looking at international issues I would suggest that perhaps too much attention has, in retrospect, been focused on corporate taxation issues in particular when these taxes do not, even in developing countries, usually comprise more than 20% of taxation revenues.

What we now need to do is recognise the tax is a much broader issue, and so, therefore, is tax abuse. All countries suffer domestic tax losses. In addition, too many jurisdictions are tax aggressors, and look like tax havens. But most countries, even those that are tax havens, are also vulnerable to abuse from other tax havens. And there is no one tax that operates in isolation. So, for example, if someone evades a sales tax, they will also fail to declare their income or corporation taxes, and might well evade social security contributions as well, whether due by themselves, or by the staff that they employ. These statements are simple matters of accounting certainty. In that case the risks within tax systems are not bilateral i.e. from one country to another particular country, or solely between taxes of a similar type. There is instead a significant risk of tax spillovers: that is, a weakness in one tax or one aspect of a tax administration system can impact on many other taxes and not only in a domestic jurisdiction, but beyond it.

It is, of course, the case that we need data to appraise just how big our losses are to international financial flows. But I now argue that it is no longer the case that addressing particular and isolated aspects of this problem is enough. What we now need is an international organisation, or a range of those organisations, to come together to undertake both quantitative and qualitative reviews of tax systems to properly identify the risks that exist between them and within them, and between particular aspects of individual taxes and aspects of tax administration in all potential scenarios.

I have been looking at developing an appraisal system to facilitate this task with my colleague Professor Andrew Baker of Sheffield University. We hope to publish academic research on this issue very shortly and would like to share it with you. Our goal in doing so is simple. In February this year the United Nations, the World Bank, the International Monetary Fund and the OECD all committed in a common statement to look at tax spillovers but did not say how they were going to do so. What we want is that those organisations work with those in civil society and academia who have long worked in this area to develop the necessary methodologies to appraise precisely where the tax risks are on a country-by country basis. The goal is to ensure that measures to identify and address illicit financial flows, wherever they might occur, can be put into effect with the greatest chance of yielding maximum return on the investment in this process so that people around the world can be convinced that the better societies, the better economies, and the better markets that might result are truly within their reach. This, in my opinion, is the way to achieve the Sustainable Development Goals and I am as a result delighted that this conference is looking at this issue.

______________

[ii] Richard Murphy’s work on the tax gap is undertaken as part of a European Commission Horizon Research and Innovation Action, ‘Combatting Fiscal Fraud and Empowering Regulators’ (COFFERS, grant #727145).

[iii] socialistsanddemocrats.eu/sites/default/files/Special report on tax gap 1 trillion euro_130109.pdf

[iv] https://www.taxjustice.net/wp-content/uploads/2014/04/Cost-of-Tax-Abuse-...

Choice

Published by Anonymous (not verified) on Tue, 27/11/2018 - 7:36am in

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Economics

With the corporatisation, privatisation of so many services previously the domain of the state a substantial change has taken place.

Social ekonomi — den tredje vägen

Published by Anonymous (not verified) on Mon, 26/11/2018 - 9:21pm in

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Economics

Verksamheter inom den sociala ekonomin har allmännytta och/eller medlemsnytta, inte vinstintresse som drivkraft.  Förskolor, fritidshem, fritidsgårdar, hemtjänst, äldreboenden, biblioteksfilialer, anläggningar inom kultur- och fritidsområdet är exempel på verksamheter som kan drivas av stiftelser, ideella föreningar eller ekonomiska föreningar … Kunskapen om den sociala ekonomin och dess betydelse för samhällets utveckling är låg i Sverige. Vi […]

Demystifying economics

Published by Anonymous (not verified) on Mon, 26/11/2018 - 4:10am in

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Economics

The first thing to understand about macroeconomic theory is that it is weirder than you think. The heart of it is the idea that the economy can be thought of as a single infinite-lived individual trading off leisure and consumption over all future time … This approach is formalized in something called the Euler equation […]

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