Monday, June 26, 2006

A Bigger Pie

Baking a bigger pie is the holy grail of economics. That's why Gordo said he was going to use Jamie's edgy new recipe for post neoclassical endogenous Tuscan pigs trotters. Sadly he did no such thing, falling back instead on yet another helping of ancient British Railways Scotch Egg, with extra tax and Stalinist planning. Not even nouvelle, let alone Jamie.

Now the TaxPayers Alliance is having another go. They want HMT to take a proper look at Jamie's cookbook:

"At the moment the Government uses a "static" economic model which assumes that raising taxes by a certain amount increases revenues by a set amount. This is obviously wrong – doubling tax rates will not double revenue because of the negative effect on incentives and the health of the economy. Similarly, the Treasury’s economic modelling does not acknowledge that tax revenues can hold up when taxes are reduced because of the positive impact on incentives and the wider economy. These are known as the “dynamic effects” of tax cuts – and there is plenty of evidence from around the world showing their extent (Australia and Ireland are two recent examples)."

To get things moving, they've got 40 leading economists to sign a letter calling for HMT to establish a Dynamic Analysis Division, along the lines of that recently set up inside the US Treasury (see here for the more detailed case).

As far as we know, these 40 economists were not among the 364 who signed that notorious letter to Mrs T in 1981.

PS For the 364 names that will live in infamy, see here. A key difference is that they were the establishment trying to hold back the future: the TPA's 40 want to bring it on.

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