Archive for the 'Income & wealth' Category

Income and tax illusions

The Per Capita think-tank today released a survey of attitudes on tax and spend. The number one point they extracted from the survey results was that ‘Australians want a more progressive tax system’:

95% of respondents believe that low income earners and middle income earners are taxed too much, while only 16% believe that high income earners pay too much tax. However, only 3% of those surveyed feel low and middle-income earners pay too little tax, whereas 53 per cent believe that high income earners do not pay enough.

But as Per Capita itself notes, almost nobody believes that they personally pay too much tax. One reason for this is that many higher-income earners have an erroneous view of how well off they are relative to the community as a whole. In a 2004 paper I reported survey research asking people to place themselves in income deciles. Only 2% of people thought they were in the top two deciles. Read the rest of this entry »

How much did people trust the bank deposit guarantee?

Despite the federal government’s bank deposit guarantee, the RBA’s annual report showed that there was a run on the banks last year, requiring it to print more $50 and $100 notes.

Though demand has since eased off, the growth in currency in circulation at the end of the financial year was still about three times what would otherwise have been expected (even the usual annual 5% growth is surprisingly high, given the massive increase in use of electronic transfers).

It’s easy for voters to say in surveys that they don’t trust politicians, but here was a case when they were backing their opinions with real costs and risks to themselves. They would rather sacrifice the interest they might have earned and take the 3% or so risk of being burgled than believe either the banks or Wayne Swan.

Does winning the lottery make you more happy, or less stressed?

This week’s $100 million lottery prize prompted ABC radio to ring me about the research finding that winning the lottery doesn’t make you happier. I declined the interview after discovering that I would be talking live to the nation’s insomniacs at 4.20am next Sunday morning (though did suggest a solution to this problem – find an overseas interviewee in a day time zone).

Though one early paper – which is cited in books on subjective well-being published up until a few years ago – did find some evidence for negative effects of lottery wins, it was never an especially strong finding. Winners in the sample experienced lesser ‘mundane’ pleasures than members of a control group, but their present ‘general happiness’ was higher. The authors of this paper also stressed that their survey was at a single point in time, and could not do genuine before and after tests of happiness changes.

This later paper by Andrew Oswald was able to use the British Household Panel Survey to do a genuine before and after examination of lottery winners. It found that
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Low SES not a disadvantage at uni

Commenter Fitzroyalty asks whether there is recent data on low SES completions and drop-outs. In general, recent research gives cause for optimism that once low SES students reach university their SES status is not of itself (on average) a negative factor affecting outcomes.

This report based on Longitudinal Study of Australian Youth did find some slightly lower projected completion rates for the children of low education or occupation parents, but that these differences were not statistically significant after controlling for ENTER. In other words, low SES had done all the damage it was going to do at school, and did not do more damage at university.

The 2008 report of the Australian Survey of Student Engagement, released a week or two ago, found that low SES students had very similar rates of considering dropping out (34.6%) to all Australian students (33.1%). The grade point average of low SES students (71.6%) was virtually the same as all Australian students (71.9%).
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Do Group of Eight graduates earn more?

In full-fee markets, Group of Eight universities charge a large fee premium over their less prestigious competitors. But is this a good investment by students?

According to an article in the latest Australian Economic Review, reported on in the SMH this morning, the answer is no – at least for new graduates.

Using data from the 2003 starting salaries survey carried out by Graduate Careers Australia, UWA academics Elisa Rose Birch, Ian Li and Paul W. Miller found that while choice of industry (mining especially), occupation and having an honours degree all matter, once other factors are controlled for ‘university effects have only minimal impacts on graduates’ starting salaries’.

If this pattern persists as graduates’ careers continue, it would be remarkable: that the brand value of prestige institutions and the presumably higher average innate ability of Group of Eight graduates count for near-nothing in the labour market.
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Is Christmas shopping bad for your identity?

It wouldn’t be Christmas without clerical complaints about commercialism:

But God is far from a capitalist, says Melbourne Anglican Archbishop Philip Freier, who said the commercialisation of Christmas and encouragement to spend increased the risk that people would define themselves only as consumers.

Praise the Lord and Clive Hamilton!

But outside Clive’s books, how likely is it that people would define themselves only as consumers? The 2007 Australian Survey of Social Attitudes asked its respondents to agree or disagree with the proposition that:

Shopping helps me create who I am

2% of respondents strongly agreed, and 11% agreed, for a total of 13%. But they were massively outnumbered by the 34% who disagreed, and 28% strongly disagreed, for a total of 62% (there was a large ‘neither’ response).

Unhappily for the Archbishop, listening to Christ’s message on a regular basis isn’t a big help in warding off the evils of consumerism. 11% of people who attend church once a week or more agree that shopping helps create who they are, exactly the same proportion as among the people who never go to church.
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Family finances under familism

My blog suggestion yesterday that ‘working couples with children’ deserve ‘much less’ welfare assistance attracted some questioning in the post’s comments. NPOV asks

is this from the starting point that you believe almost everyone deserves “less”, and couples with children deserve “much less” because they already get more than everyone else?

Certainly my starting point is the classical liberal one that people are entitled to keep their earnings unless there is some strong reason to tax it away from them. Among the reasons given for taxing, redistribution of cash to families seems to me to be among the weakest. It is not specifically aimed at meeting any need that is generally agreed upon, such as for education or healthcare. It is given to people with incomes that are well above average, who are quite capable of giving their children food, clothing and shelter without any outside help at all.

Though some family welfare meets genuine needs, much of it is redistribution between family types irrespective of need. Recent years have seen a significant improvement in the financial position of families relative to single people and couples without dependent children (though people in the latter still generally have the most to spend on themselves).
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The intellectual uses of ‘liberty’ and ‘equality’

In response to my implied criticism of Andrew Leigh for assuming that increases in inequality are bad and decreases good, but never specifying for what level of inequality would satisfy him, commenter Leopold responds:

one could turn the criticism around. Liberals believe in liberty – but how much liberty, exactly?

Leopold’s argument (I am paraphrasing here) is that preferences for greater equality or greater liberty are rules of thumb to be applied to specific circumstances, but there are cases where social democrats could accept less equality and liberals accept less liberty. We can’t always precisely calculate the final overall result of all these complex trade-offs to say what is the exactly right amount of equality or liberty. But this doesn’t invalidate the initial assumption that, all other things being equal, more equality or more liberty (depending on your philosophical position) is desirable.

I think Leopold’s point is reasonable. For example, I say that there should be less tax, and while I have clear pet hates among government spending programmes (eg FTB) that I think should be cut to reduce general tax rates, I never say exactly how much tax I think should be levied or what tax rates I would be happy with.

High-level political abstractions gives us intellectual tools that help organise our understanding of the world, but they don’t necessarily provide answers for specific problems. That requires far more detailed analysis.
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Why is father-son intergenerational mobility stable?

Using data from four surveys over a 40 year period, Andrew Leigh’s latest paper (pdf) argues that father-son intergenerational mobiliity is stable in Australia.

In his conclusion, as reported by The Australian, he says:

“On one view, the absence of any significant rise in inter-generational mobility might be regarded as surprising,” Dr Leigh says in the study report.

“Increases in healthcare coverage, the banning of racial discrimination, the abolition of up-front university tuition fees and an increase in the number of university places are among the policy reforms that might have been expected to increase inter-generational mobility.

“Yet there were also trends in the opposite direction.” These included rising unemployment during the study period and the removal of inheritance taxes in 1979. Dr Leigh said a rise in inequality had been well-documented with the distance between income groups greater in the early 2000s than in the mid-1960s.

I know conclusions are where they let academics off the referee’s leash, but some of this seems a bit odd to me. I’m not sure why improved healthcare coverage would make much difference; in any case claimed ‘disability’ is much higher than it used to be. Nor are bans on racial discrimination likely to have influenced the figures much; such laws are easily evaded and many migrant groups were doing fine long before discrimination was outlawed.

Inheritance taxes, as Andrew L’s own research shows (pdf), took only about 30% of the largest estates – something unlikely to affect the salary data he’s using (though it may affect investment income). And rising inequality is consistent with high mobility (if the poor and the rich swapped places each generation, ie complete mobility, inequality would be unchanged because it is a static, snapshot-in-time measure).
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Partisan pessimism

Newspoll regularly asks voters whether, in the next six months, their standard of living will improve, stay the same, or get worse. Their results always show that supporters of the political party in opposition federally are more pessimistic than supporters of the governing party.

As I noted a couple of years ago, at most times the causes of this are hard to disentangle. Some of it is probably real. Living standards of opposition supporters may genuinely be negatively affected by the government’s policies – eg Labor supporters relying on handouts that may not be so readily available under the Coalition; Liberal supporters suffering from increased tax and regulation under Labor. And people whose living standards have declined may blame the government, and therefore appear as supporters of the opposition in the polls.

These factors are least likely to apply as a new government begins; voters cannot blame its past policies for their current problems, and the inevitably slow-moving machinery of government means that few objective changes are likely to occur within six months. But as a Newspoll conducted in mid-December, and reported in the Australian this morning, shows this doesn’t stop reversals in who feels optimistic about their future living standards and who feels pessimistic.
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