People do not want a cashless society

With the technology available today, we would be ready to switch to a cashless economy. While having every transaction recorded in some way may trigger some privacy issues, imagine how easy it would be to keep records, file taxes, avoid theft, and how difficult tax evasion would become. So are we ready?

No, argue Naoki Wakamori and Angelika Welte, and it is not because merchants are holding back. Household still hold on dearly to cash, at least for small transactions. Indeed, the Bank of Canada conducted three years ago a survey on payment methods. One can use its data to estimate a model of payment method choices, then run a counterfactual experiment where card payments would be available universally. Wakamori and Welte find that cash usage barely changes. This means that households have a strong preference for using cash. Younger generations, though appear to be more ready to use debit or credit cards, so a cashless society may still lie ahead.

Feldstein on the Romney Tax Plan

Marty runs some numbers.

Updates: The TPC responds to Marty, and Marty responds to his critics.

The impact of irrigation on democratization

There is a large variety of institutions and cultures around the world, and I find it fascinating to understand how they originated. The literature has shown that some of them have origins that go back very far, possibly all the way to the introduction of agriculture (Example 1 and example 2)

Jeanet Sinding Bentzen, Nicolai Kaarsen and Asger Moll Wingender discuss how irrigation has influenced the arrival of democracy, and in fact prevented it. They point out that this is not a story about irrigated versus rain-fed agriculture, but rather of areas where there was potential for irrigation versus the others. The story is as follows. Irrigation requires large investments and control of water sources, and allows the extraction of substantial rents. This is a perfect environment for a despot. This theory was advanced by Wittfogel in Oriental Despotism and was soundly criticized. But Sinding Bentzen, Kaarsen and Moll Wingender confirm that the theory holds water empirically. The fact that irrigation potential is crucial allows to avoid the reverse causality issue, as geographic factors are presumably exogenous to institutions, at least until man started having an impact on climate. What is fascinating is that this still has an impact today on the prevalence of democracy.

A Tax Level Cheat Sheet

A nice summary from Keith Hennessey:

Over the past 50 years federal taxes have averaged 18% of GDP.

Governor Romney proposes taxes “between 18 and 19 percent” of GDP.

The House-passed (“Ryan”) budget proposes long-term taxes of 19% of GDP.

President Obama’s budget proposes long-term taxes at 20% of GDP.

The Bowles-Simpson plan proposes long-term taxes at 21% of GDP.

What makes the wife happier?

The flexible margin in a household's labor supply is usually the wife. As long as the husband has a decent income, the decision to work for the wife can then hinge on more than strictly economic factors, such as finding it more satisfying to work or not to work. Everyone is different in this regard, yet there may be some aggregate trends that may help us better understand the female labor supply as well as what can improve the population's well-being.

Edsel Beja finds that women are generally just as happy being a housewife or a working wife. But there are subtleties once you look closer at the data from the World Values Survey. In middle-income countries, there is a clear ranking in satisfaction: part-time work is best, housewife second, and full-time work is last. This should contribute to the realization that work is not an all-or-nothing decision, and that flexible work schedules can be very much appreciated.

Why you want good national statistics

In this age of austerity measures, every public expense is subject to higher scrutiny than usual. Statistical offices are under particular pressure as politicians do not quite seem to see the point of making informed policy decisions (or are actively trying to hide the real situation of the economy, as in Argentina and possibly China again). What makes good public statistics valuable? One could make a theoretical argument about optimal policies, policy uncertainty and expectation formation, but here nothing beats empirical evidence.

Oasis Kodila-Tedika looks at Sub-Saharian African countries. Of course, these results may not carry over to developed economies, but Africa has the advantage of bringing substantial variation in the data to the table. He uses a measure of statistical capacity from the World Bank and shows that higher values have a positive impact on government effectiveness, as measured by survey results on perceptions of governance. While the results are statistically very significant, it is impossible, though, to determine whether they are economically significant, as the units in the variables have no direct economic meaning. But an improvement of statistical capacity from the worst country to the best one would improve more government effectiveness than improving GDP per capita from the worst to the best. That is huge, even though there is substantial endogeneity that needs to be accounted for, but I doubt it would make all of the effect disappear.

More Competition

Glenn Hubbard and Tim Kane have started a blog.