Saturday, July 30, 2005

Eagle Watch

Plugging = Eagle Watch, an Economic and Political Briefing, by the Ateneo Center for Research and Development, Political Science Department, To be held this coming Wednesday August 3, at Ateneo Rockwell. Speakers include as usual Cielito F. Habito, Professor of Economics and former Socioeconomic Planning Secretary; and I believe Jose Magadia, S.J., of the Political Science Department.

Attendance is not free. (If it were, the quality of the briefing would be suspect). The cost is 2,500 pesos. However if you're a member of the media, or represent a signficant business entity, then it is worth every penny. The Eagle Watch is standard front-page material in most major dailies.

One of the highlights is results from the Ateneo Macroeconomic Forecasting Model, or AMFM. Curently at the helm of the modeling is ehem yours truly, taking over the chores from its chief architect, U-Primo Rodriguez of UP Los Banos. I had the privelege of being part of its conceptualization, though I would move on to other things for a while. I am not yet back in Ateneo, though I have been hired on a consultancy basis.

At the Eagle Watch you will hear our forecasts for economic growth, unemployment, and inflation rate, for 2005; and our analysis of the economic impacts of several policy-related scenarios.

In a later post I'll explain a bit more about the AMFM and my involvement in it. For now - see you at Rockwell!

Thursday, July 28, 2005

Rules versus discretion

How to follow up on the highly publicized tax evasion cases in the Philippines? The traditional approach is to settle. Currently this administration is publicly pursuing criminal cases against tax evaders. However the option of settling is tempting, given the immediate cash flows this provides (stanching the urgent fiscal hemorrhage) compared to the prospects of protracted court trials.

This is the classic problem of "dynamic inconsistency", formalized by 2004 Nobel prize winners Finn Kydland and Edward Prescott. It may be the case that, after announcing a rule, there may be a short run benefit to reneging on it. Case in point: the dilemma of pursuing tax cases. Another example is patent protection, say for HIV medicines, for which society may benefit greatly if the intellectual property protection is rescinded. The problem with pursuing these short run benefits is that the entire framework of rule-setting is undermined. If it is widely known that patent protection is withdrawn whenever a great discovery is made, incentives to invest in making discoveries is dampened. In the case of tax collection, government sends a signal that it is wiling to settle tax evasion cases, then the incentive is to evade now (baka makalusot) and settle later; the possible savings in unpaid taxes is probably much larger than the surcharges and penalties anyway.

My recommendation? Well what is that program called? Run After Tax Evaders. Not after their money. And not just run - get the goods on them, and finish the job.