Monday, December 8, 2008
The ultimate news source about Nepal
A new news portal is launched today in Nepal. It is titled Republica, a national daily plus news portal about Nepal. Senior journalists, some of whom I know and have worked with in the past, are working in this new media house (Dhumbarahai Media). It is going to be the ultimate one-stop source of news and information about Nepal. A Nepali version is named Dainikee.
Below is a snapshot of the first-ever homepage of www.myrepublica.com:
Stiglitz and Keynes
More on similar stuff here.
Economic theory had long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of “market fundamentalism.”
Keynes argued not only that markets are not self-correcting, but that in a severe downturn, monetary policy was likely to be ineffective. Fiscal policy was required. But not all fiscal policies are equivalent. In the US today, with an overhang of household debt and high uncertainty, tax cuts are likely to be ineffective (as they were in Japan in the 1990s). Much, if not most, of last February’s US tax cut went into savings.
...That necessitates restructuring both tax and expenditure programs. Lowering taxes on the poor and raising unemployment benefits while simultaneously increasing taxes on the rich can stimulate the economy, reduce the deficit, and reduce inequality. Cutting expenditures on the Iraq war and increasing expenditures on education can simultaneously increase output in the short and long run and reduce the deficit.
Today, the risk is that the new Keynesian doctrines will be used and abused to serve some of the same interests. Have those who pushed deregulation 10 years ago learned their lesson? Or will they simply push for cosmetic reforms — the minimum required to justify the mega-trillion dollar bailouts? Has there been a change of heart, or only a change in strategy? After all, in today’s context, the pursuit of Keynesian policies looks even more profitable than the pursuit of market fundamentalism!
Sunday, December 7, 2008
Innovation: 8 Nepali students built an ultra-light aircraft!
Using mostly locally available materials, eight Nepali engineering students built an ultra-light aircraft and successfully completed a test flight yesterday. Interesting stuff!
More here and here. Human capital is not a constraint to growth in Nepal. Policies to promote R&D is lacking in Nepal. There is a high potential for “self-discovery”, but policies to promote them are long lacking.
Friday, December 5, 2008
Price floor on rent in Nepal
The left-wing Finance Minister Bhattarai is scrambling to meet revenue target set by him in this year’s budget. Many said that around Rs 42 billion in tax revenue is very ambitious. Recently, the government decided to give bonus of up to 200% on the basis of per worker revenue collection in customs offices. Now, to bring house rental business under the tax net, the government is imposing a minimum price for rent in major cities.
This means that house owners will have to pay a fixed (minimum)amount of tax even if rent charged by them is below the one earmarked by the government. If the prevailing equilibrium rent (price) is below the one set by the government, then house owners will be forced to pay rent tax that is not consistent with the price charged by them. So, market rent price will rise till the point where the price floor corresponds to the 10% flat rent tax imposed by the government. On the other hand, if the rent price fixed by the government is below the market price, then either rent price will come down or it will not have any effect other than increase in tax revenue from house rent sector.
Here is the article.
Kapildev Ghimire, director general at Inland Revenue Department (IRD) told the Post they would conduct a survey later this month on rents in various business and residential areas of Kathmandu and major cities outside Kathmandu to fix reference prices.
He made it clear the government would collect tax according to the rent it sets even if it is found that the rent is lower than the fixed amount.
"Fixing minimum prices has become necessary to discourage those who show very little rental prices in paper to evade tax ," he said. The government will start collecting taxes by effectively enforcing the law from mid-January after completing the survey."
The government has set a revenue collection target of Rs. 1.03 billion through rental tax in the current fiscal year while the amount was Rs. 706 million in the last fiscal year.
[I have microeconomics-related demand and supply graph in mind but can’t spend time in drawing that in MS Word because it’s finals week and I am overloaded with exams and papers. Next time, if this issue emerges again, then I’ll definitely include a figure to explain the effect of this price floor.]
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This news piece caught my eye. The vegetable ghee industry is perishing in Nepal. Why? due to high import taxes on raw materials, high transportation costs, labor troubles, and lack of power. The high cost of production has made Nepali ghee uncompetitive in the Indian market.
The ghee industry has been facing the squeeze for the last 10 months. There are 16 vegetable ghee factories in Nepal. High taxes in the import of raw materials from Kolkata of India, high customs duty on export, labour troubles, lack of power and poor transportation facilities have pushed these factories to the verge of extinction, said Laxman Nebatia of Swastik Ghee and Oil Industry. The closure of ghee factories has caused a loss of Rs 2,400 million. The government should revive the ghee industry, said Pradip Murarka of Nepal Ghee and Oil Industries’ Association. High import duty and export taxes have spoilt the competitiveness of Nepali ghee.
Financial crisis and protectionism
New e-book from about the dangers of protectionism due to the financial crisis. It is titled The crisis and protectionism: Steps world leaders should take.
Here is the synopsis:
Unless world leaders strengthen trade cooperation, new tariffs and competitive devaluations could trigger a protectionist spiral of WTO-consistent trade barriers. To rule this out, world leaders should: 1) Reduce protectionist pressures by fighting the recession with macroeconomic polices; 2) Translate APEC and G20 leaders’ words into deeds by agreeing a framework for concluding the Doha Round; and 3) Establish a real-time WTO/IMF surveillance mechanism to track new protection.
The dangers of protectionism:
If all nations put their tariffs up to their bound rate – i.e. the WTO tariff ceilings that they are committed to respecting – then exporters from middle- and high-income nations would faces tariffs that were on average twice as high as they are now; those facing poor nations would triple since they tend to export agriculture goods where tariff bindings are astronomically high or nonexistent. If a vortex of beggar-thy-neighbour moves pushed tariffs ‘only’ up to the maximum level that nations had applied over the past 13 years (i.e. since the last WTO Round was signed), then figures would be more like 50% higher and 100% higher for the groups.
Meanwhile, Rodrik ponders on Keynesian economics and protectionism. He is also taking about Tobin tax on foreign transactions and redirecting that tax revenue to the developing countries that are in dire need of credit.
So unless we come up with a solution to the credit constraints in the developing world, we are going to either endanger the effectiveness of Keynesian policies in the U.S. and other advanced nations, or risk a sharp increase in protectionism. Not a pleasant choice.
And, here is ‘modern day Keynes’ aka Krugman applauding the great Keynes.