The visible hand in economics

New Zealanders like having more money

Posted on: October 5, 2007

An ‘enlightening’ survey by the Business Council for Sustainable Development finds that 75% of New Zealanders would like a tax cut.

The people that said they didn’t want a tax cut were probably thinking about the issue that was raised in the next question in the survey, which asked if people would want tax cuts that meant spending on health, education, and welfare fell. To this over half of the people said no.

Ok, so the Business Council took this as evidence that people think tax cuts are affordable. The chain of logic that I think they are using is: People want tax cuts. They wouldn’t want tax cuts that cut down services. So they think the government can afford tax cuts without cutting services. However, I’m not sure that this survey was the cleanest way of asking that question. After all, many people won’t think of the opportunity cost of the tax cut, just the fact that they would be able to buy more. As a result, even though I accept that the survey showed (to some degree) the premises, I’m not sure the conclusion necessarily follows.

I think the cleanest way to ask if people believed the government could afford tax cuts would be to ask: Can the government afford tax cuts?

Overall, I think that asking people if they want tax cuts is nearly as silly as asking people if they want a $20 note. If you don’t give them an idea of the opportunity cost you are simply offering them money for nothing, which most utility maximising agents would accept (unless they can use it as a signal, or if refusing the money gives them more utility than the best thing they can spend the money on, which means they are implicitly consuming a good with the money anyway 😉 )

Update: Stuff digs into more detail and finds that the participants were asked whether tax cuts were affordable, and a massive 72% said they were. Now that I know they actually had answers to the question that they said they had the answers for, I feel a lot more comfortable with their result 😉

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1 Response to "New Zealanders like having more money"

[…] Eric Jon Magnuson wrote an interesting post today onHere’s a quick excerptThe people that said they didn’t want a tax cut were probably thinking about the issue that was raised in the next question in the survey, which asked if people would want tax cuts that meant spending on health, education, … […]

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