There has been much discussion recently on the use of fiscal policy to combat recession. What measures should be used? How effective will they be? How will the resulting large budget deficit be brought back into balance in the future?
But what are the microeconomic implications of all the tax changes? Are the changes fair? What implications do they have for incentives? Perhaps it’s time for a completely fresh look at the structure of our tax system – a system that has been changed piecemeal over the past years to meet short-term macroeconomic and political goals. Can it be redesigned to meet the two microeconomic goals of efficiency and equity? The following article looks at what form a redesigned tax structure might take.
Our tax system is a mess. But Darling has a chance to fix it. (Peter Wilby) Guardian (11/4/09)
Questions
- In what ways does the present tax system fail to meet the goals of (a) fairness through redistribution and (b) creating appropriate incentives?
- Explain what is meant by “The whole system has been framed by Tory thinking to assist social engineering, Tory style”.
- Provide a justification and critique of the reforms proposed in the article.
Nationalisation has been coming back into fashion lately with the UK bank bail-outs. In other parts of the world though, it has been back in fashion for longer and the articles below look at two recent cases in Latin America: the nationalisation of the Chaco energy company and the renationalisation of Spanish-owned airline, Aerolineas Argentinas (AA).
Bolivia nationalises energy firm BBC News Online (24/1/09)
Argentina renationalises airline BBC News Online (18/12/08)
Questions
- Explain what is meant by nationalisation.
- Discuss the arguments for and against nationalising (a) an airline and (b) an energy firm.
- Assess why nationalisation has become more prominent in the media recently than privatisation.
- Discuss the arguments for and against privatisation.
Peak oil is an important concept for the oil market. Peak oil is the moment in time at which the maximum extraction rate of oil is reached. From this moment on, production will decline. Basic economics tells us that the oil price will tend to rise from then on (unless demand were to fall faster), but the complexities of the demand and supply for oil dictate that there will not be a simple inverse relationship between the supply of oil and the price. In the articles below George Monbiot interviews Faith Birol, the Chief Economist of the International Energy Agency and the Asia Times article looks at the extent to which world economies rely on oil for energy and other needs. Oil prices may be low at the moment and the market may be awash with excess oil and not enough demand for it, but this is a short term phenomenon; there is little doubt about the long-term direction of the price.
When will the oil run out? Guardian (15/12/08)
Be careful what you wish for Asia Times (15/1/09)
Questions
- Write a short paragraph explaining what is meant by peak oil.
- Using diagrams as appropriate, explain the changes that took place in the oil price in the last six months of 2008.
- Analyse the likely impact on the UK economy of arriving at peak oil output in (a) the short term and (b) the long term.
- Discuss when peak oil is likely to arrive.
EU leaders at a Brussels summit have agreed a plan to cut emissions. This will involve the 27 EU countries cutting greenhouse gas emissions by 20% by 2020 compared with 1990 levels. The aim is also to try to raise renewable energy sources to 20% of total energy use. The package has become known as the 20/20/20 package, but scientists have already argued that these measures may not be sufficient to prevent serious climate change.
Fiddling with words as the world melts The Economist (18/12/08)
Climate deal is far too little too late Guardian (15/12/08)
EU leaders claim historic agreement on cutting pollution Guardian (13/12/08)
Climate change: EU leaders reach compromise deal on emissions Guardian (12/12/08)
World needs ‘climate revolution’ BBC News Online (11/12/08)
EU climate package explained BBC News Online (5/12/08)
EU leaders reach new climate deal BBC News Online (12/12/08)
Questions
- Identify two external costs that result from climate change.
- Using diagrams as appropriate, illustrate the impact of the EU climate change deal on the market for electricity.
- Discuss the extent to which the EU climate change deal will lead to an increase in the supply of renewable energy sources. How quickly are these changes in supply likely to take effect?
- Examine two other policies that national governments could implement to reduce carbon emissions.
An ongoing debate in economics for many years has been the extent to which governments should intervene in the economy. The debate has re-emerged in recent months with the global financial crisis as many commentators have arged that had a tighter regulatory system been in place, it could have helped to prevent some of the poorer lending practices of banks internationally. Even the recent G20 meeting (dubbed Bretton Woods II by some analysts) discussed regulatory reform of the international financial system. The two articles below look at this debate about the extent of government intervention from two very different angles. The first is from the perspective of Victorian England and Little Dorritt, while the second (by Peter Mandelson) looks at how globalisation and the financial crisis have informed the debate about state intervention.
So much for ‘late’ capitalism Guardian (24/11/08)
The future active state Guardian (4/12/08)
Questions
- Examine the advantages and disadvantages of greater state intervention in an economy.
- Discuss the extent to which globalisation has changed the need for the amount of state intervention in an economy.
- “Strong social welfare systems and redistribution can be contributors to economic growth.” Discuss the extent to which this statement will always hold true.