Wednesday, April 15, 2009

Fantasy Economics

What Would You Do If You Were Chancellor of Exchequer?

For mock interview practise I often ask students what they would do if they were chancellor of exchequer. It's such as open ended question they often struggle to know where to start.

What I Would Do?

Integrate National Insurance and Income tax. The UK tax system is too complicated. There's no reason NI and income tax have to be separated. It's not as if the government have been investing national insurance contributions into a giant pension fund for when the baby boomer generation retires...

Pigovian Taxes. This is a tax based on the principle that taxes should be based on external costs. E.g. The biggest problem facing the world is global warming. The biggest cause is coal powered electricity generation. Therefore, I would put a large tax on coal powered electricity and use the tax revenue to subsidise carbon free electricity generation

I would also tax more - Fatty / unhealthy foods, Petrol, Lorries and anything which created external costs to society.

Give Firms incentives to make workers shareholders in the company they work for.

Current Crisis. It's hard to know what else could be done in the current crisis. At the moment, it is necessary to run a large budget deficit to provide a fiscal boost. But, the fall in tax revenue has been so sharp there is little room for further fiscal expansion. Boosting growth will have to come from monetary policy. This is a fine line to tread.

I know one thing I would definitely be doing if I was chancellor - I'd be fervently praying all the current policies - fiscal policy, lower interest rates, lower exchange rate, increasing money supply would soon have an effect in bringing the economy out of recession.

1 comment:

James said...

Is the "credit crunch" the sole reason for the recession?

Bad loans given to people who could never repay the debt doesn't feel like the only reason to me.

What of oil touching $150 a barrel? Our economies are dependent on oil from top to bottom.

As economies attempt to come out of recession, demand for oil will increase and so will the price.

Won't we just bang our heads on a price ceiling and hit the floor of a recession, over and over, until either a replacement for oil is found or, worse, we don't.