Good point – consistency matters.

Are you willing to are you willing to make the same assumptions about the carbon tax – its revenue and behavioural effects?

There are three ways that we could forecast behavioural effects which I mentioned in a prior post (I’d avoid language like second and third round effects, as it isn’t simply a matter of timing).

The least informative, but least costly is to admit that such numbers are a “maximum” expected revenue. This is fair, but this isn’t what was done. Instead the static numbers were taken and “spent”. The Treasury documentation notes this, the Infometrics report notes this, I noted this – but the Greens didn’t note this. As a result, there is nothing wrong with me pointing out that this is missing 😉

The next two take two forms “structural” and “reduced form”. A structural one says ” there is a form of behavioural response, and we will use data about individuals/households to estimate it – eg for a “labour supply” estimate you may look towards this type of modeling http://www.tvhe.co.nz/2014/02/05/conceptual-introduction-to-tax-benefit-microsimulation/ .

Now this is all well and good, but it comes with its own flaws that we have to be aware of, and we know there are “multiple types” of behavioural responses – which means needing many structural models, and a way of aggregating between them!

So we can go to a reduced form type model, and estimate the “elasticity of taxable income”. These estimates for NZ indicate that the introduction of a top tax rate at this level would raise little to no revenue (as I note in the prior post) – however, given how small NZ is, this is only based on one study, so once again I wouldn’t treat it like bible.

None of these methods suggest ignoring it, simply using the ready reckoner, and then saying “we can spend all the money on these things” – even without a point estimate of behavioural effects, we have enough evidence and theory here to indicate that the trade-offs involved are different than the Greens pointed out in their policy documentation, which is exactly the point I was getting at.

This is true in a large part – however, using these costings at least show some restraint and recognition of costs. It is better that parties at least do that, than purely making things up!

I fully support debate around trade-offs, however, the sort of ‘we’ve done the numbers’ claims that the Greens are using are explicitly based on not assessing the trade-offs…