Comments on: On compensating for a change to GST

By: TVHE » Tax shift and immigration

TVHE » Tax shift and immigration — Wed, 10 Feb 2010 21:26:13 +0000

[...] tax might, at the margin, reduce immigration. Now when the income tax cut is measured with an increase in consumption taxes, this argument becomes a lot [...]

By: Matt Nolan

Matt Nolan — Tue, 09 Feb 2010 22:29:47 +0000

@rauparaha

“I’m not convinced that National’s analysis is as nuanced as you’re inferring!”

If they are thinking along the lines of the tax working group, then I think this was the road they were moving down (that was my impression from reading papers).

On the welfare idea, I intend to right about credit constraints later – shifting to GST has a welfare cost for people facing credit constraints. Given that credit constraints are even worse now, it isn’t exactly the best time to introduce the shift

“Substantively, I think it’s also important to remember that the lifetime income hypothesis doesn’t have a lot of empirical support”

Consumption smoothing doesn’t – but the assumption required in the above post is weaker, it is that lifetime income does provide a binding constraint.

By: rauparaha

rauparaha — Tue, 09 Feb 2010 22:24:22 +0000

I agree that it will be impossible for them to perfectly compensate for welfare, but I interpreted Key differently. I thought he was saying that ‘compensation’ was to ensure fiscal neutrality, and then they’d biff some more money at low income people to partially offset the GST cost. I’m not convinced that National’s analysis is as nuanced as you’re inferring!

Substantively, I think it’s also important to remember that the lifetime income hypothesis doesn’t have a lot of empirical support. People’s consumption tends to track income far more closely than Friedman predicted. So, if the government IS thinking about it like that, then they should try consulting the data more closely.