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Saturday, December 09, 2006

All taxes not created equally

Greg Mankiw finally comes out swinging against NoPigou types, making points Kitchen Linker has been trying to make:
The Pigou Club wants to move beyond the rhetorical syllogism, all too common in Republican circles, that

1. Taxes are bad.
2. Pigovian taxes are taxes.
3. Pigovian taxes are bad.

Such a simplistic mindset makes it impossible for people to discuss in a responsible way the relative merits of different tax systems. Instead, we Pigovians acknowledge:

1. There will be some government spending.
2. This spending will be funded with taxes.
3. Government should use the least bad taxes it has available.

and this:
Pigovians have no magic bullet to keep down government spending. Like many others, I believe that government spending is too high. But Pigovians need not be united about this. The key thing that unites us is the belief that whatever government spending is done, the tax revenue to pay for that spending should be raised in a way that does the least harm or, better yet, the most good.

Greg Mankiw also points out that economist and writer Tim Harford has succinctly joined the Pigou Club:
Consider the problem of climate change: a centralised regulatory approach here would be a catastrophe, lashing out at easy political targets such as SUVs or cheap airline travel. But pure laissez-faire will not save the planet either. A predictable tax on carbon would unleash a lot of world-saving creativity at minimum cost.

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