An Axiomatic Case for the Flat Tax

by André Casajus[*] and Andreas Hoffmann

Estonia was the first European country to introduce a flat tax on income in 1994. Many others followed. For example, Hungary successfully introduced a flat tax in 2012. In the U.S., some of the States (e.g. Pennsylvania) have introduced a flat tax on income. As in Germany, however, the federal income tax in the U.S. is still progressive. We believe the case for the flat tax is strong. Presenting an axiomatic justification for the flat tax as a redistribution rule, this post suggests that you need to accept only a few basic properties to favor a flat tax for income redistribution.

The Germans Have Learned Nothing

by Andreas Hoffmann

Ever since the beginning of the EMU crisis, politicians, journalists and economists have blamed Germany’s “fiscal austerity” for the prolonged troubles in Europe’s periphery. If only the Germans spent more on goods and services, so the idea, the people in the periphery countries of Europe could sell more stuff. Exports would help their economies recover.

The German government, however, is found to engage in fiscal austerity. The recent budget surpluses even seem to annoy people. B. Setzer wrote (mischievously): “Germany has fiscal space even by German standards!”, and she should use it for the good of Europe. But she won’t. P. Krugman adds that Germany’s restrictive fiscal policy was a “drag” on growth in Europe. The Germans seem to have learned nothing from the crisis!

Emergency Rooms Just Encourage Drunk Driving

by Roger Koppl

I do not understand why so many pro-market commenters are opposed to extending unemployment relief.  The supposedly killer, knockdown, unanswerable argument is that unemployment relief encourages unemployment.  Hospital emergency rooms encourage drunk driving.   Should we therefore close hospital emergency rooms?  

Keynes: Stimulus Follows Stability and Not Vice Versa

by Mario Rizzo

 

I have been arguing for some time, both here and elsewhere, that the ideas of John Maynard Keynes after the mid-1930s and into the 1940s are more sophisticated that the prime-the-pump notions of many modern day economists who call themselves Keynesians. Keynes, himself, evolved away from those simple ideas he advocated in earlier years.

Progress in Macroeconomic Policy?

by Mario Rizzo

 

In the last forty-five years, I am told by macroeconomists, there have been many advances in macroeconomic theory. Let us grant this. Then why is the Keynesian policy position – putting relatively small differences among proponents aside for the moment – more or less the same as when I was an undergraduate at Fordham University from 1966 – 1970? The talk is still about deficit-financed stimulus either through expenditure or, to a lesser extent, tax cuts. I am still hearing about multipliers (really R.F. Kahn’s invention). The numbers involved are larger, but conceptually the policy talk is as if the past forty-five years did not happen.

 

Let me put things another way. Suppose Gardner Ackley, the Chairman of the Council of Economic Advisors under Lyndon Johnson, had been asked in 1964 for his policy recommendations for a hypothetical just like today’s situation, what would be different in the fiscal realm between his advice and that of the Obama advisors?  Surely the advances of the past forty-five years would give us something new. What is it?

 

(Note: I chose Gardner Ackley because he was the author of the most widely used macroeconomic theory textbook for graduate students in the 1960s. Look at the book you’ll be surprised at how “up-to-date” it is.)

 

UPDATE: For a detailed examination of the stimulus idea see this article by Robert Murphy, an alumnus of the Colloquium. It is called, “Does ‘Depression Economics’ Change The Rules?”

 

 

 

 

Why Not A Big Tax Cut?

Chidem Kurdas

We have an exact measure of the most recent recognition lag. This month the National Bureau of Economic Research identified the beginning of the current recession as December 2007. So the lag is about a year.  Click for NBER You’ll recall that in the 1950s Milton Friedman pointed to the time it takes economists to recognize a recession as one of the lags