PR from Basque research:
Environmental fiscal reform would improve the environment and reduce the informal economy
The effect that the introduction of environmental fiscal reform would have on an economic system has been the focus of study since the 1990s. However, studies of this type have until now failed to take the informal economy into consideration; this is an activity which in the case of Spain, for example, could account for as much as 20-25% of GDP. The group of researchers of the UPV/EHU and the BC3 have addressed this subject and have concluded that environmental fiscal reform could help to cut the damage caused by the informal economy on the public system apart from the environmental benefit it would bring in its wake. The journal Energy Economics has published the online version of the work and will shortly be issuing a print version.
As different environmental problems have been emerging, many pieces of academic work have been produced to study the possibility of incorporating environmental fiscal reform and the effect this would have on the economy. Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes. “Environmental taxes manage to get consumers and companies to pay for the damage sustained by society as a result of pollution. What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution,” explained Mikel Gonzalez-Eguino, one of the researchers responsible for this study.
The raising of taxes by public bodies through the tax system usually finds itself undermined by the so-called informal economy, in other words, the economic activity that does not pay any tax, and which is “a significant, growing proportion in terms of GDP in many developed economies,” pointed out González-Eguino. In Spain and in other countries in the south of Europe it is reckoned to have a volume equivalent to 20-25% of GDP.
In the fiscal reform being proposed by this group of experts, the income produced by “green taxes” would be used to cut the taxes on labour to the same extent, since “in this work we didn’t want to get involved in the argument about what the optimum size of the public sector should be,” as González-Eguino carefully explained. With the reform we are just guaranteeing that the necessary money would be collected to maintain the existing public services but a greater burden would be placed on pollution and a lesser one on labour.”
The researchers used economic models to simulate how a reform of this nature would affect the wider Spanish economy. “We used a methodology known as computable general equilibrium which allows us to take all the economic sectors into consideration and in that way to analyse policies that affect the economy structurally. What is new is that we have included the informal economy, which previously conducted studies had not taken into consideration.”
The tax system would emerge strengthened
In the simulations made the researchers observed a greater benefit for the public system than they had expected. “When an environmental tax is introduced, the groups that do informal work start to pay taxes by the indirect channel of consumption. If tax on labour is reduced at the same time, a reduction in the inefficiency of the tax system and an effective cut in fiscal pressure are achieved. In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy.”
As regards the possibility that the proposal made by this study could become reality, González-Eguino stressed that “this study reinforces the idea that environmental fiscal reform could be highly beneficial and would allow us to put figures on one of the recommendations that several international bodies have been making to us for a long time.” However, he does not ignore the limitations they have come across in the course of the study: “For example, the associated rise in energy prices could be counteracted by the increase in real wages, but for inactive people, pensioners and unemployed people especially, this effect would not exist. The possible regressive effects of these reforms on the more vulnerable groups, in particular, would have to be analysed, and mechanisms that would correct these effects, should any arise, would need to be included.”
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Markandya, A., González-Eguino, M., Escapa. 2013. (Forthcoming). From shadow to Green: linking environmental fiscal reforms and the informal economy. Energy Economics. 35.2.
http://www.sciencedirect.com/science/article/pii/S0140988313002090
Eclectikus says:
December 27, 2013 at 3:55 pm
“And thirty years of social democracy,”
Oh. Okay, that should do any economy in.
The ‘nice’ thing about taxing externals is that you can completely make up both the amount of the externals AND the tax rate. On paper, Obama just raised the economic cost of CO2 to make the cost of green energy seem more reasonable. Reality no longer has to interfere with the left’s imaginary circumstances.
Apparently the “informal economy” is where wealth is being generated.
Spain’s problems could be eliminated by encouraging the “informal economy” to grow unfettered.
Of course, governmental control freaks, including these authors, would have to join it and actually produce something.
Aye, there’s the rub!
Work against Nature’s Law and you become Nature’s enemy. You’d think these “smart people” could understand this obvious dictum.
So our US Fed is cutting its QE3 bond buying by $10b in January. At $75b instead of $85b we’re still talking about close to a trillion dollars a year in stimulus. Soft stimulus that mostly ends up as entries on a bank balance sheet.
Instead, had our government been spending 1 trillion dollars a year on infrastructure projects we would have a booming economy like China by now.
Booming like China? Be careful what you ask for, you might get it. Giving pure quill crony capitalism another shot at global domination.
If western governments simply practiced honest fiscal reform, they wouldn’t have to dream up smoke and mirrors tax raising ploys with grandiose BS names like “environmental fiscal reform”.
Ed- with all due respect, the Keynesian economic models don’t work long term.
Long-term economic growth is not magically created by wasteful debt-financed public works projects, implementing insane monetary policies (that create stock/real estate bubbles and devalue the currency), rapidly increasing the welfare ranks, etc.
Sure, governments can borrow, tax, print and spend money to make the GDP line go up in the short term, but that only comes at the price of decreased personal savings, decreased personal consumption in the future, devalued currency, popping stock/real estate bubbles, decreased private sector investment, inefficient use of land/labor capital, etc.
Keynesians would be well served by reading Basitat’s Broken Window Fallacy to understand the concept of unintended consequences of wasteful and excessive government spending and destructive monetary policies.
Sustainable long-term economic growth can only be achieved by allowing free markets to efficiently and effectively allocate the use of land/labor/capital. Total state and municipal spending should never be more than 10~15% of GDP and should only be used to provide essential public services such as defense, infrastructure, mail delivery, police/fire departments, provide local public schools, managing public land, coining money, protecting the border, running the courts and implementing and essential and minimal laws and regulations, collecting taxes, issuing patents and that’s about it.
To perform all these functions should cost no more than 10-15% of GDP. The more money that’s kept in the private sector and not wasted by the government, the more money that’s available in the private sector to expand business, develop new technologies, build new factories, hire new employees, increase exports, expand production, etc.
Fact-checking shows:
In September 1935, he [JFK] made his first trip abroad, with his parents and sister Kathleen, to London, with the intent of studying under Harold Laski at the London School of Economics (LSE), as his older brother Joe had done. Ill-health forced his return to America in October 1935, when he enrolled late and spent six weeks at Princeton University.
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Ever been to an open-air flea market Zeke? You know, at least here in those states with a sales tax, any sale should include said sales tax … but, more often than not, it isn’t. THAT is the informal economy (no paperwork, no records, and NO sales tax.)
‘Informal’ would also include ‘sales’ made over the back fence, out of the trunk of a car, late at night to ‘friends’ at a party, over lunch at Arbys … making sense yet?
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@_Jim
Readers Digest version just for you: show me the definition of the term “informal economy” in the infernal paper, and then we will know.
SAMURAI, with all due respect also, long term economic growth follows good infrastructure because companies seek to locate there.
Since Nixon flew to China and since Reagan persued the monetary policies you espouse we are drifting towards becoming a third world colony of the People’s Republic. We get to raise their pigs and they get to pollute our land and food with arsenic. And homelessness has become commonplace.
http://nypost.com/2013/12/15/why-are-we-letting-china-buy-american-companies/
http://www.straightdope.com/columns/read/3139/does-pig-excrement-kill
Anyway, I see markets and the economy going down before long. Bond interest rates are climbing. Republicans cut unemployment benefits to 1.3 million laid off workers so they won’t be spending any money. These people were once fully employed at one time or they wouldn’t be eligible for benefits. A lot of these people live way outside the cities, the saw mills, rural stores and businesses are shuttered. The unemployed aren’t ‘deadbeats’, and for so many it’s just that their jobs were sent to China.
Add in cuts to SNAP food benefits which also harm the economy in dollars lost and in general morale of a big swath of the population. People now find it much more difficult to even look for work, let alone find a job because these cruel cuts also reduce the numbers of jobs available when you weaken the economy.
Even the elderly have a negative impact on the economy when they fear they will run out of money because of the constant talk from Conservatives that cuts to their entitlement programs are inevitable. They are told that nonsense that Social Security and Medicare will go broke and the theft of their pensions was Obama’s fault.
It sure looks like sabotage.
There’s an even better `tax system: get rid of income taxes, sales taxes, energy taxes etc and charge people for their use of the land, a Resource Rental. Henry George got it right.
California did it up to 1978 and was the `Sunshine State.’ Now, business is emigrating. Michigan did it up until 1995 and General Motors collapsed in 2008, Chicago suburbs have been ploughed up and industry is emigrating.
Those nations still running on this form of government revenue continue to go from strength to strength: Taiwan, and Hong Kong.
Don’t kid yourself – the informal economy is the free market. It is rowdy, unkempt, beyond regulation, and functionally perfect. It is the correct way people with a pocket full of wealth can deal with people with shelves full of goods. It was never meant for those with empty pockets.
Gail Combs says:
December 27, 2013 at 3:34 pm
The informal economy is the black market or the underground economy.
…
One might even say the underground economy is the way disgruntled citizens give the politicians a
vote of no confidence. (I am being polite) If politicians had their head screwed on correctly they would realize a large underground economy is the SYMPTIOM of a very sick country. New tax schemes are the LAST thing politicians should be looking at. Instead they should be taking a good hard look at the direction their country has been heading in and start cutting bureaucracy, repealing laws and cutting taxes because a large underground economy means you got a really bad system of government.
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I have some sympathy for that point of view. Perhaps it’s more because of the recognition that
TAXES on an economy are bad in any shape or form. When much economic activity actively
DODGES, AVOIDS and EVADES the tax system, then the system should be changed.
Thus a very large underground economy is the sympton of a BAD (and unfair) TAX SYSTEM.
Governments still need to fund the services we, their citizens, demand they provide. But taxes
which fall on economic activity are crazy: they reduce that activity.
Henry George suggested a viable alternative at the end of the nineteenth Century.
if the tax systems around the world were changed to that advocated by George, there would be no need whatsoever for all these proposed extra taxes.
BTW, all George’s books are still in print and available to read on line. They are very good reading.
Take an example of an informal market on the internet – craigslist. We buy furniture there when we need it. Tell me how you regulate or tax that? Do you cause all people to register everything they own and pay a tax on it, in case they resell it? Or do you pass a law saying that since goods “might be stolen,” that no one can sell used items?
Look, this paper is diabolical from first to last. Because carbon tax raises prices on everything, as was observed in Australia, there is suggested a bribe to provide a higher wage. Here in my state, one of our counties may be voting to raise the minimum wage to $15/hr. This would shut down businesses and raise prices. But will the electorate understand that? I think this is probably a test run to see how to market raising wages. Within a short time, production would be destroyed and your higher wages would have no purchasing power anyway. So this is the tax scheme from Hell.
Ed– I agree the imminent worldwide economic collapse/or severe depression from decades of government wasteful spending/massive debt accumulation/money printing will most likely start in the bond market with increasing bond yields forcing massive defaults of Treasury and municipal bonds.
The increasing bond yields will then lead to increased mortgage rates, which will pop the real estate bubble, leading to another banking sector crisis, which will then preclude a pop of the stock market bubble.
The US industrial sector has been destroyed by $100’s of billions/yr in compliance costs of unnecessary rules, regulations and mandates, excessive corporate taxes, union extortion, absurd labor laws, minimum wage regulations, OSHA standards, etc.
SNAP/welfare/disability/Medicaid-care compensation, etc., are being severely “abused” by too many people taking the perfectly logical option of living on the dole; I don’t blame people for taking advantage of the welfare system, I blame the government for setting up such economically/socially destructive policies.
People would be much better off if we did away with Medicaid/care and Social Security and people became responsible for their own retirement and healthcare costs. Prior to Medicaid/care medical costs were just 5% of GDP, now they are almost 20%…..
The US already has about $125 TRILLION in SS and Medicaid/care unfunded liabilities, which means young people currently paying into these Ponzi Schemes will never see any of this money.
If people were responsible for their own retirement, medical care and hard times, they would be forced to save more, buy cheap private sector health insurance which would add $trillions to bank/insurance company capital reserves, which would in turn provide $trillions of low interest funds available for private sector capital investment/business expansion.
The era of big government/massive national debts/ massive budget deficits is over. Keynesian economics, like CAGW, doesn’t work; it’s all illusory.
The imminent collapse/severe depression will either lead to small limited governments or tyranny…
It’ll be interesting to see how it plays out, however, history shows an era of awful tyranny is the most likely scenario of economic collapse….
We’ll see soon enough….
The “informal economy” is a strong indicator of both bureaucratic burden and overbearing tax levels on wealth creators (people actually adding to the GDP as opposed to spending it). Whenever governments raise taxes (directly or indirectly) or add new layers of declaratory paperwork, the informal economies grow. They are an immediate sign that people stop believing that their tax money is spent in a responsible and frugal manner and they’d rather risk criminal penalties than give any more to the government than they cannot hide from it.
agimarc says: @ur momisugly December 27, 2013 at 4:54 pm
“Jack Anderson wrote in 1989 that fully 15% of the GDP of the old Soviet Union was black market when it fell. Some speculate it was much higher than that. “
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They estimate the US underground economy is $2 Trillion dollars or nearly 8% of gross domestic product. link
………….
agimarc says:
“What these clowns don’t understand is that the more intrusive they get, the larger they grow the underground economy. Or worse, perhaps they understand precisely so as to turn us all into criminals so we are easier to govern. Cheers -“
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They do not need the underground economy to do that.
The problems not mentioned in this article is the removal of the jury trial and even when there are trials by jury, the jurors are not aware they can nullify a law but think they have to follow the dictates of the judge. SEE: What lawyers & judges won’t tell you about juries (An eye opening read)
Here is how the politicians have gotten around the US Constitution to make sure citizens are denied their right to a trial:
So there went our last constraint on the government. Without a trial by jury we lost our RIGHT to overrule idiotic laws and regulations.
Zeke says: December 27, 2013 at 5:11 pm
You need to use the phrase “informal economy” (with the quotation marks) to do a search.
This is what I found: as first up
WIKI
The Business Dictionary.com defines it as:
Nik says: @ur momisugly December 27, 2013 at 5:27 pm
defensible income…. defensible space….
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Are those the new politically correct terms for Property Rights in the Post Modern Society?
One does get sick and tired of the constant changes in vocabulary used to hide less than honest motives.
Ed Mertin says:
December 27, 2013 at 6:34 pm
So our US Fed is cutting its QE3 bond buying by $10b in January. At $75b instead of $85b we’re still talking about close to a trillion dollars a year in stimulus. Soft stimulus that mostly ends up as entries on a bank balance sheet.
Instead, had our government been spending 1 trillion dollars a year on infrastructure projects we would have a booming economy like China by now.
>>>>>>>>>>>>>>>>>>>>>>
It is still money taken out of the tax payers pocket.
If you want to stimulate the economy just Get the He!! Out of The Way! All legislatures have to do is spend a couple years repealing idiotic laws instead of passing them.
Many people operate in the shadow economy because they just give-up trying to get through the masses of red tape and hard heads of bureaucrats.
Here is a personal example:
1. I checked with the town to see if I was allowed horses on the property I wished to buy. – They said yes and gave me a copy of the zoning code.
2. I put a hefty down payment on a professional horse barn and went to get the permits.
3. I was told I needed professionally stamped architectural drawings. I got them but they were from out of state so did not qualify.
4. I had a friend who was an in-state architect stamp them. I was then told I needed two hour burn through to the hay loft (there wasn’t one) and the building had to be concrete. (A real no-no with horses)
5. I gave up and had a friend pull a permit for a type-2 shed (approved for use with animals) built it myself and after inspection moved in my horses.
6. I then had monthly ‘Complaints’ that required hassles by the town for the rest of the time I lived there. (Had to pick-up and dispose of all manure in pasture, treat all urine spots with caustic lime, manure had to be in covered containers, had to have electric fence charger certified…) I gave-up and moved to North Carolina not far from a pig farm.
Jim says: @ur momisugly December 27, 2013 at 9:19 pm
Gail Combs says December 27, 2013 at 3:49 pm
…
LSE is the school who has trained people like … John F. Kennedy and other world leaders.
Fact-checking shows:
In September 1935, he [JFK]…
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Jim you might want to correct the WIKI entry then:
And also RANKER’s Famous London School Of Economics Alumni
Short form:
Socialists wealth redistribution via carbon and other related taxes keeping the totalitarianists in control and reducing freedom to just a term in the dictionary.
Isn’t there a logical fallacy in the entire premise? Let us assume that AGW is correct, and its necessary to de-fossil fuel the economy. Transferring taxes to fossil fuels from other things (capital & labour) does make sense, in order to restructure the economy towards a labour intensive, capital unintensive model (peasant farming essentially). But. The logical conclusion is that if green taxes are successful, and the economy decarbonises itself, the yield from the green taxes will tend to fall. Presumably eventually to zero, if fossil fuels were totally eliminated from the economy (I know that isn’t going to happen, but go with me here). So at that point, what do governments tax? You can’t tax labour again, because you’ve just arranged your entire economy around people doing work, not machines. Ditto capital, because there won’t be much of that either.
The logical conclusion of green taxes is that they want fossil fuels to continue to be used, so they can be taxed, and the population can be forced to pay ‘penance’ for the ‘sin’ of using them. If they stop using them, you can’t tax them, and if you can’t tax them, you can’t control them any more either, and that would never do!
sophocles says: @ur momisugly December 28, 2013 at 12:34 am
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The underground economy is to my mind more a symptom of too complex a system of business regulations and taxes. Even with the help of a lawyer and an accountant you are walking in a mind field if you try to open a business in the USA. One that is libel to blow-up in your face. You are a heck of a lot safer stealing cars than being a farmer or a doctor.
Car theft is 2 months probation even if you have a previous record. (Talk with District attorney on why they would not bother prosecuting my car-theft case. This were federal guidelines shown to me.)
For example:
There is also civil asset forfeiture laws where assets can be taken without trial or even charges being pressed. …civil asset forfeiture laws allow the government to seize property without charging anyone with a crime….
If you wish to read through the legalize: Selected Civil Asset Forefeiture Statutes
In many cases the assets are seized and then YOU are left trying to prove the government was wrong.