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migalley
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How to cut your deficit

September 28th, 2006, 11:17 am

Prostitutes, smugglers boost Greek economyQuoteProstitutes and smugglers will give the Greek economy an unexpected boost as their illicit activities will now be counted in the country's official economic output, a senior official said on Wednesday.
 
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ppauper
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How to cut your deficit

September 28th, 2006, 12:23 pm

QuoteOriginally posted by: migalleyProstitutes, smugglers boost Greek economyQuoteProstitutes and smugglers will give the Greek economy an unexpected boost as their illicit activities will now be counted in the country's official economic output, a senior official said on Wednesday.I thought prostitutes and smugglers were the greek economy.They've got something else now ?
 
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Anthis
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How to cut your deficit

September 29th, 2006, 11:04 am

Everybody has been laughing out loud with this issue here over the last couple of days. Even people with no clue about economics say that this is the joke of the decade. Some have proposed the ecofin minister to pimp his children and his wife first. The fact is that "black" income legal or not, or not so legal, cant be taxed directly. Thus it shouldnt be accounted in GDP estimations since public debt is paid by taxes. This is the story all about. A sort of creative accounting in order to make public accounts look good.
 
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Traden4Alpha
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How to cut your deficit

September 29th, 2006, 11:28 am

QuoteOriginally posted by: AnthisEverybody has been laughing out loud with this issue here over the last couple of days. Even people with no clue about economics say that this is the joke of the decade. Some have proposed the ecofin minister to pimp his children and his wife first. The fact is that "black" income legal or not, or not so legal, cant be taxed directly. Thus it shouldnt be accounted in GDP estimations since public debt is paid by taxes. This is the story all about. A sort of creative accounting in order to make public accounts look good.Leaving aside political issues and whether politicians should pimp their families ( they certainly prostitute themselves often enough), I'm not sure I agree with the logic that GDP should exclude illicit activities because of tax issues. First, if taxability is the basis for inclusion in the GDP, then should we exclude the economic activities of the poor and double-count the activities of the rich on the basis that the rich can and do pay higher marginal and total tax rates? Second, from the standpoint of understanding an economy, I would think that excluding these activities would distort the picture of the economy as money flows into and out of the excluded sector. Third, there is always the potential for developing a tax on these activities. Maybe the issue is we have two measures called GDP and GDP* where one measure includes ALL economic activities and the second includes only taxable economic activities for purposes of EU bureaucracies.
 
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ppauper
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How to cut your deficit

September 29th, 2006, 12:23 pm

QuoteOriginally posted by: AnthisSome have proposed the ecofin minister to pimp his children and his wife first. is she hot ?
 
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Anthis
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How to cut your deficit

September 29th, 2006, 12:56 pm

Let me disagree partially for the following reasons:Wealthier people though phenomenally pay higher taxes have also more options tax evade or avoid, effectivelly they pay as many taxes as they are pleased, at the higher end, those people have the power to negotiate their taxes, for example "I plan to make this investment that will employ X people, if government taxes me more than Y% for the next decade i ll take it to another country" is a typical argument. Each IRS tries to tax first those who cant avoid their "grips". And those are the ordinary people. Now illicit activities or "invisible resources" include many things. Not necessarily illegal activities like robberies, drug dealing, or smuggling of any kind. Though pimping is illegal, prostitution in this country is a recognised and regulated profession. Though many sex workers dont follow this route for many reasons.Illicit activities can include the pocketmoney a student may earn by babesitting neighbors' children, the rent a widowed granny may not reveal that she earns in order to suplemment her pension, the income a shop keeper hides through not issueing a receipt, or even the dinner i bought to a civil servant who had helped me in a case much beyond his duties and responsibilities. Moreover, while i support your in- out- flows argument between sectors, its obvious that illicit activities can only be estimated subjectively. Eg. if the government could control smuggling then there would be no smuggling since the law had to be enforced. If IRS assumes that every single tax payer is involved in illicit activities, and every one is a tax evader untill the opposite is proven, as is the current "mentality" of relevant tax regulations here, then can just raise the tax rates though it will harm first those who are honest and those who cant escape the grips.At the bottom line the point is: The average inhabitant of this country, wont become wealthier overnight because of an alchemy at the ecofin ministry. Neither the actual creditworthiness of this country will change overnight. On the contrary, such proposals especially when they drain to media, undermine country's reliability and status, if there is any still left...
Last edited by Anthis on September 28th, 2006, 10:00 pm, edited 1 time in total.
 
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Cuchulainn
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How to cut your deficit

September 29th, 2006, 1:05 pm

QuoteMaybe the issue is we have two measures called GDP and GDP* where one measure includes ALL economic activities and the second includes only taxable economic activities for purposes of EU bureaucracies.Aaron Brown has a nice account of some GDP and GDP++ measures in his book "The Poker Face of Wall Street". He has a number of interesting conclusions one each of these.
Last edited by Cuchulainn on September 28th, 2006, 10:00 pm, edited 1 time in total.
planetoid 65000 == 2002 AV_63
 
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Traden4Alpha
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How to cut your deficit

September 30th, 2006, 11:46 am

QuoteOriginally posted by: AnthisAt the bottom line the point is: The average inhabitant of this country, wont become wealthier overnight because of an alchemy at the ecofin ministry. Neither the actual creditworthiness of this country will change overnight. On the contrary, such proposals especially when they drain to media, undermine country's reliability and status, if there is any still left...You are absolutely correct that the new measure of GDP doesn't make anyone any richer (we could even argue that it will make people feel poorer). But it does suggest that people are richer than the government thinks they are. You are also correct in saying that measuring the informal economy is very hard. Yet, I would argue that the total error on GDP estimates will drop by including some measure of the informal economy. I'd bet the current bias in GDP measurement (caused by excluding informal economic activities) exceeds the sigma on the estimate of the size of informal activities.I also agree with your point about rich people and taxation. The entire topic of GDP raises the core issue of assiging a "credit score" to countries. Is some particular measure of GDP a good proxy for the ability of the country to meet its public obligations? It would seem that GDP is a poor measure because it fails to distinguish between economic activity that can versus cannot provide additional resources (taxes) to meet public obligations. As you say, rich people (especially the extreme rich) may not be the blessing they seem to be. Likewise, the poor are probably "bad" as they can't afford increased taxation and represent increased public liabilities. It seems that the best measure of "credit score GDP" would only count the middle class -- people who have enough wealth to pay more taxes if needed and yet do not have so much wealth that they can divert it to a tax haven.With regard to measuring economic activity, the informal economy has a mixed impact. I suspect that low levels of tax-avoided activities probably are a credit to the economy as they suggest the economy has more production and consumption than the tax rolls would suggest. If middle class people are getting a little extra cash on the side, then they can probably afford a little extra tax on their legitimate wealth and income. But high levels of informal activities are extremely bad. For example, I believe that upwards of 38% of Brazil's economy is off the books with detrimental effects on legitimate businesses and tax policy. The more business that takes place without paying taxes, the higher the tax rates on legitimate businesses. The higher the tax rates on legitimate business, the less competitive are those legitimate businesses and the greater the incentive to become a tax avoider. That's a vicious circle which is bad for the country and its ability be economically stable.As for "undermining country's reliability and status," I see your point. Yet if the EU/broader world wants an unbiased understanding of the Greek economy, then it needs unbiased estimates of that economy, not a sugar coated picture. If the Greek economy has extra unmeasured activity or if it has a economically dangerous underbelly, then perhaps the informal economy should modulate the country's credit score/GDP/status. The broader point isn't one of making the Greek economy richer overnight by some ecofin ministry sleight-of-hand, but of creating a clearer picture of how rich that economy really is. I would argue that explicitly calling attention to the informal economy does just that.QuoteOriginally posted by: CuchulainnAaron Brown has a nice account of some GDP and GDP++ measures in his book "The Poker Face of Wall Street". He has a number of interesting conclusions one each of these. Thanks for the suggestion. That looks like an extremely interesting book.
 
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Anthis
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How to cut your deficit

October 1st, 2006, 10:16 am

Quote(we could even argue that it will make people feel poorer).More than correct, not just feel poorer, be poorer actually. EU officials have warned that if this adjustment eventually takes place, the country will be ranked among the relatively wealthy EU countries, and support from EU funds will drop sharply. Funds that were invested in infrastructure, education, entrepreneurship, environmental protection, (un)employment policies, etc. will be droped and the country will be asked to contribute further to EU budget, which effectivelly means more taxes for the average people.If this government is not the definition of amateurs, i just wonder what the hell they are.
 
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Traden4Alpha
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How to cut your deficit

October 2nd, 2006, 12:30 pm

QuoteOriginally posted by: AnthisQuote(we could even argue that it will make people feel poorer).More than correct, not just feel poorer, be poorer actually. EU officials have warned that if this adjustment eventually takes place, the country will be ranked among the relatively wealthy EU countries, and support from EU funds will drop sharply. Funds that were invested in infrastructure, education, entrepreneurship, environmental protection, (un)employment policies, etc. will be droped and the country will be asked to contribute further to EU budget, which effectivelly means more taxes for the average people.If this government is not the definition of amateurs, i just wonder what the hell they are.These are the types of unintended consequences that fascinate me. In an effort to make themselves look better by making the GDP look bigger, the econfin ministry is decreasing the future performance of the legitimate economy.On the other hand, can the ecofin ministry revert to the old definition of GDP? I would argue that the EU could charge Greece with the national equivalent of tax evasion or welfare fraud if Greece tries to go back to the old definition of GDP. The EU could argue that the Greek government is hiding a fraction of its economy from EU wealth criteria by a combination of lax enforcement and undercounting of informal economic activity.I wonder if governments need to be held to something like IFRS accounting standards in preparing a full balance sheet and income statement. That might give a much better picture of the financial state of the government and country than the traditional view of budgets, deficits, and debts. I know governments are "non-profit" but a budget surplus seems like net income. The biggest challenge would be in estimating the "cash" position of a government. With fiat money, a government can just print more cash. I would envision two levels of account statements: one would provide an accounting of the government and the other would provide an account of the broader economy of the country (o perhaps just the private sector). Ratios of the public sector to private sector assets, liabilities, revenues, and expenditures would provide some measure of the relative functioning and health of the two.