Tax Elasticities and Discriminatory Unemployment Benefit | Mauri Kotamäki | Negotiator 61

Summary

Chief economist Mauri Kotamäki opens up the basic concepts an economist uses when arguing about taxation: what an elasticity actually is, how it determines the shape of the Laffer curve, and why micro and macro elasticities give such different policy conclusions. The discussion covers why the peak of the Laffer curve remains an empirical question without a settled answer, why the capital-income Laffer curve is almost flat, and how pension contributions muddle the public debate about tax rates. In the second half Kotamäki explains the unfairness at the heart of Finnish earnings-related unemployment insurance: every employee pays the contribution, but only members of an unemployment fund receive the earnings-related benefit. Roughly 70,000 people a year end up on the basic allowance, and they are typically in a weaker labour-market position than those who get the earnings-related benefit. The episode closes on account-based social security, the difficulty of the transition, and central bank accounts for everyone.

Chapters

• 00:00 — The Laffer curve is an inverted U
• 00:46 — Introducing chief economist Mauri Kotamäki
• 01:17 — Why universal earnings-related insurance is interesting
• 01:48 — Supply and demand in the labour market
• 02:40 — What an elasticity actually is
• 03:21 — Gross, net and the confusion of elasticities
• 04:15 — The state as tax collector and the Laffer curve
• 05:15 — The link between elasticity and the Laffer curve
• 06:05 — A small elasticity means a high tax rate is possible
• 07:16 — Is the elasticity zero, as the left believes
• 08:09 — The empirical dispute over where the peak lies
• 09:41 — Pension contributions muddle the tax-rate debate
• 10:47 — Are we on the left-hand side of the curve
• 11:31 — Earned income €130bn, capital income €10bn
• 12:23 — The capital-income Laffer curve is nearly flat
• 13:18 — Gains from company sales distort the debate
• 14:10 — Tax revenue per capita against the tax rate
• 15:04 — Is Finland already at the peak
• 16:02 — How the tax is collected decides the effect
• 16:54 — Property tax and the neutrality of land
• 17:28 — The tax exemption on selling your own home
• 18:42 — Low elasticities estimated from municipal tax
• 19:31 — The extensive and intensive margins
• 20:39 — Why micro studies are local
• 22:08 — The macro elasticity is clearly larger than the micro one
• 23:33 — An elasticity around one in macro models
• 24:22 — The euro, the exchange rate and demand for labour
• 25:19 — Wages do not flex down, unemployment does
• 26:25 — Counter-cyclical currencies as a buffer
• 27:29 — The euro area’s economic-policy framework failed
• 28:40 — The unfairness of the earnings-related system
• 29:54 — Basic allowance without the earnings-related part
• 30:44 — Those outside are in a weaker position
• 31:27 — Funds and trade unions are separate things
• 32:25 — Communication, YTK and the structural fix
• 33:38 — A comparison with pension and sickness insurance
• 35:21 — About 70,000 people a year on basic allowance
• 36:05 — The COVID crisis underlined the problem
• 36:37 — Entrepreneurs’ pension and unemployment cover
• 38:22 — Voluntariness and adverse selection
• 39:04 — Being an employee and an entrepreneur at once
• 39:17 — The report and the parties’ support for reform
• 41:05 — The government programme’s wording buys time
• 42:00 — SAK and EK changed their positions
• 43:00 — Kotamäki’s ongoing Laffer projects
• 44:01 — Basic income, the basic account and Piketty’s nest egg
• 44:40 — An account model would cover the whole life cycle
• 45:23 — The transition is the hardest question
• 45:50 — Central bank accounts for everyone and digital money
• 46:25 — The neutrality of money is left for a later episode
• 46:48 — Closing thanks and summary

Watch

The recording lives on the Neuvottelija channel: Verojoustot ja syrjivä ansiosidonnainen | Mauri Kotamäki | Neuvottelija 61. A Finnish edition of this episode is published at www.neuvottelija.fi.