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Comments on: Relative prices and GST http://www.tvhe.co.nz/2007/12/14/relative-prices-and-gst/ The Visible Hand in Economics Fri, 14 Dec 2007 01:19:50 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2007/12/14/relative-prices-and-gst/#comment-621 Fri, 14 Dec 2007 01:19:50 +0000 http://tvhe.wordpress.com/2007/12/14/relative-prices-and-gst/#comment-621 “But I guess the same issues arise with a tax on labour once we stop treating labour demand as homogeneous.”

Indeed, that is a very good point. I wonder what types of workers firms have inelastic and elastic demand for (my guess is labour with specific skills vs unskilled labour), after all if demand is inelastic the firm will take on most of the tax burden, which implies that they will get the least benefit from a cut in taxes.

“I still think the reduction in the intertemporal distortion is the strongest argument for shifting from income to consumption taxes.”

Would you care to elaborate?

]]> By: CPW http://www.tvhe.co.nz/2007/12/14/relative-prices-and-gst/#comment-620 Thu, 13 Dec 2007 21:33:40 +0000 http://tvhe.wordpress.com/2007/12/14/relative-prices-and-gst/#comment-620 Good point. But I guess the same issues arise with a tax on labour once we stop treating labour demand as homogeneous.

I still think the reduction in the intertemporal distortion is the strongest argument for shifting from income to consumption taxes.

i would clarify the final question to “mix of GST and income taxes & social spending”, I’ve never been convinced that the tax system is a very effective means of achieving equity goals.

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