Members on wealth taxes & the fiscal theory of the price level
Reporting back on NZAE Member Survey #7
In the seventh NZAE Member Survey we asked questions related to wealth taxes and to the fiscal theory of the price level.
Survey details
The survey was circulated amongst NZAE members on Monday, 5 June 2023 and was open until Monday, 12 June. Forty-one respondents answered the survey. 79% of respondents were male, and 46% held a PhD. Most respondents worked in academia or in the government (67%). The 41-50 age group was best represented (31%).1
Questions 1 and 2 dealt with the desirability of a wealth tax.
Wealth taxes & efficiency
Q1. A wealth tax, with offsetting proportionate reductions in income tax rates, improves efficiency.
45% of respondents agreed or strongly agreed with this statement, while 27.5% disagreed or strongly disagreed. Relatively more government employees (at least) agreed, compared to academic economists.2
Wealth taxes vs. alternatives
Q2. Standard public policy goals, like equity and efficiency in raising tax revenue, that could be accomplished with a well-enforced wealth tax could be better accomplished with other types of taxes or modifications to existing taxes.
55% of respondents agreed or strongly agreed with this statement, and 32.5% disagreed or strongly disagreed. More government economists disagreed relative to academic economists.3
The fiscal theory of the price level
The fiscal theory of the price level is the idea that government fiscal policy, including debt and taxes present and future, is the primary determinant of the price level or inflation, as opposed to monetary theory.
Q3. If the government runs a fiscal deficit without stating how this deficit will be financed, the price levels adjust to balance the government's intertemporal budget constraint.
The majority (44%) of respondents at least agreed with the statement, with 26% at least disagreeing. That said, the proportions were more even in the weighted results, taking the respondent’s level of confidence into account (39% vs. 25%, with 33% uncertain).
More government economists agreed with the statement relative to academic economists (who are mostly uncertain).4
Respondent’s uncertainty was reflected in the comments, including: “too many other factors at play to give a definitive answer here”, “depends on the state of the economy”, and “depends on the size of the deficit”.
Weighting
The survey also elicits the confidence in the answer to each of the three questions. This information can be used to weight the responses. I present the unweighted (raw) and weighted survey responses below.5 The results reported above are unweighted, unless otherwise specified. We found little divergence between the weighted and unweighted results for question 2, but some differences for questions 1 and 3.
Commentary — details matter
Quite a few respondents made comments along the lines of “it depends”. Comments on question 1 (wealth taxes and efficiency) included: “devil in the detail”, “depends on the specifics”, “it depends on the wealth tax”, and:
Really depends on what the wealth tax looks like and on how income tax rates are adjusted. For example, a land tax swapped for a flattening (i.e. decrease in progressivity) of the income tax schedule would massively improve efficiency. But a broad financial wealth tax swapped for a reduction in the entire income tax schedule would likely decrease efficiency.
On question 2, more than one respondent commented that wealth taxes were difficult to enforce, for example:
It is hard to achieve a well-enforced wealth tax. Income and expenditure (consumption) are more robust mechanism[s] to achieve well enforced taxation.
On Sunday 11 June, as this survey was drawing to a close, a New Zealand political party launched a wealth tax proposal. So, wealth taxes will feature in the upcoming election campaign. The NZAE does not take positions on political issues, so I’ll refrain from drawing strong conclusions here. I do think it’s fair to say that, to the extent that this survey is representative of NZ economists, there is no consensus on the desirability of wealth taxes, but details matter.
Descriptive statistics
Q1. Wealth taxes & efficiency
Q2. Wealth taxes vs. alternatives
Q3. The fiscal theory of the price level
Without an optimal weighting approach, we weight the survey responses as follows. We first compute the mean confidence for each question. Then, for each respondent, we compute the absolute distance from the confidence mean weighted by the confidence standard deviation. If the response is above (below) the midpoint (i.e., disagree and strongly disagree) and the confidence is above mean confidence, we add (subtract) the weighting factor. If the response is above (below) the midpoint (i.e., disagree and strongly disagree) and the confidence is below mean confidence, we subtract (add) the weighting factor. We also use a multiple this weighting factor by 0.49 to smooth the weighting.