Economics

The Piketty Tax is not vindicated by the failure of France’s supertax

This morning I tweeted a newspaper story telling how the French government has abandoned its 75% income tax. The government is unhappy with the tax’s meagre returns, and the negative perception of France that the tax has created. The article quotes Emmanuel Macron, the government’s own minister for the economy, who described the policy as “Cuba without the sun.”

I have never been happier to cite the Guardian. For anyone with a passing knowledge of tax policy or the Laffer curve, this outcome was entirely foreseeable. After all, it was the ludicrous top rates of income tax in the UK that drove our rockers and film stars to become tax exiles. When the rates dropped, the rich returned, with their spending, their staff, and their absurd predilection to pay extra for somebody to lower the suspension on their Range Rover Sports. As Dan Hannan, a Conservative Member of the European Parliament tweeted this morning, “Wealth taxes don’t redistribute wealth, they redistribute people” (save in the French case at least, we’re talking about an income tax).

An interesting twist is that many protest that this is exactly why Thomas Piketty, who has just refused the Legion D’Honneur, proposed a global wealth tax – so that that rich would have nowhere to which they could escape. I am not diehard enough to claim that this is impossible, but it is surely as close to impossible as one can imagine. A Piketty Tax would require unanimous global collusion in a cartel of coercion, a cartel that would not only draw the ire of the most influential cohort in every country, but which would also richly reward any defector nation with an immediate inflow of wealth. Consider the current international competition in corporation tax rates, especially between the EU states, or between the United States, as a base case. Incentives to undercut the wealth tax would likely be even stronger, because unlike businesses, who need to touch other jurisdictions in order to access their customers, wealth doesn’t need to travel. While firms like Amazon and Google need to keep some operations in high-tax but high-demand jurisdictions (if only as a profit sink), the rich need not have any such attachment.

Even if you could overcome the incentive problem of the Piketty cartel, and end international tax competition, you’d still have to find a way to coordinate and monitor the system, and to deal with perpetual travelers. If, finally, you did manage to close every possible avenue for the rich to guard their assets against government claims, then your problems would just be beginning: nobody would want to be rich any more.

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Kiev, Ukraine

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Somerset, United Kingdom

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Geneva, Switzerland

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London, United Kingdom

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Economics

Jean Tirole takes the 2014 Nobel for Economics

This week it was announced that Jean Tirole has won the 2014 Nobel Prize Memorial Prize in Economic Sciences.

This is fantastic news for the discipline. Too often the Nobel goes to financial economists who describe models of perfectly competitive, all-knowing financial markets, emotionless, rational customers and mechanical, objective regulators. Eugene Fama, I’m looking at you.

Most human beings know that the world they experience every day rarely operates like this. Jean Tirole is one of these people. His work is based on the idea that markets are messy, and often dominated by a few large and powerful firms. His conclusion is that different markets need different types of regulation: that there is no one-size fits all for economic regulation.

There are many areas in which Tirole’s research can be applied to my everyday work with monopolies, oligopolies, patent-pools, two-sided markets, and regulators. Most importantly, by arguing that every industry needs specific and different regulations, and therefore that the development of regulation is a necessary and legitimate specialism, Jean Tirole is helping keep me in a job!

You can read the Royal Swedish Academy of the Sciences’ background piece on Tirole’s work here. It is short, interesting and the perfect topic to have in the bag if you happen to be stuck next to an economist at a dinner party.

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Poznan, Poland

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