What is greatest contributor to our deficit?

[Guynemer]

Closer than Europe? Sure. But Canadian culture, in general, is quite different than ours in respect to government obligations.

[KrazyHorse]

Seriously, weaksauce. Come back when you have digested this.

The changes are, BTW, HIGHER than those implied by standard research on the price elasticity of labor supply. One potential explanation is that long term elasticities are much bigger than short-term elasticities (which is what most standard econometrics can measure)

[KrazyHorse]

Closer than Europe? Sure. But Canadian culture, in general, is quite different than ours in respect to government obligations.

What culture are you talking about, guy? Taxes and spending in Canada are both moving downward on a long-term basis. Canada now spends less at all levels of government than the US does. I don't think you understand how fundamental the changes to government have been over the last 20 years.

[giblets]

People can make much more in 2002 than they could in 1970. It's possible that people in European countries chose to work less because of increasing income while people in the US chose to work just as much.

[giblets]

I don't see why I should assume Europeans and Americans have the same income/leisure preferences.

[KrazyHorse]

People can make much more in 2002 than they could in 1970. It's possible that people in European countries chose to work less because of increasing income while people in the US chose to work just as much.

Let's examine this claim:

1) In 1970 euros and americans haven't shown any predisposition to work more than or less than each other
2) Over the last 40 years the tax & spending of the two have moved in very different directions
3) The labor markets of the two have also moved in very different directions
4) Therefore, some previously unobserved cultural difference showed up to cause this. This is the hypothesis we should place credence in, rather than the straightforward, understandable, eminently reasonable hypothesis that people work more when they get to keep more of what they earned

[KrazyHorse]

I don't see why I should assume Europeans and Americans have the same income/leisure preferences.

I don't see why you would assume they were different in such a way that this difference was unobservable until 40 years ago.

Governments can make culture, by the way. When you grow up in a place where the government takes a bigger percentage of what everybody earns, when hard work does not provide you with as much of a reward, what sort of attitudes do you think are instilled in you? This and the formation of human capital are both very good reasons why long-term labor elasticities can be much bigger than short-term elasticities. The timescale for those effects is on the order of a generation. You may be able to get 20 years of high production out of people who are used to working hard and have high skills, but the next generation won't be so eager to build those skills or learn to work hard.

[Guynemer]

What culture are you talking about, guy? Taxes and spending in Canada are both moving downward on a long-term basis. Canada now spends less at all levels of government than the US does. I don't think you understand how fundamental the changes to government have been over the last 20 years.

As a long term trend, yes. But Canada lacks the culture of belligerent international military adventurism, allowing more "European"/"progressive" policies such as single-payer healthcare, without breaking the bank.

[giblets]

I think if the increases in taxes over that time period were broken down by European country it would be easier to see if there is a relationship or not. For example the UK did not increase taxes over that period, and still lost work hours.

[KrazyHorse]

1) The difference in defence spending is ~3% of GDP. I agree that this is a valid area for cost savings. However, the US and Canada are indistinguishable relative to Euro countries on a %gdp government spending basis, even accounting for that
2) Again, this is about changes in taxes (if you want to put ricardian equivalence into it, spending)

Under obamacare+medicare+medicaid the difference in health care between the two countries is going to be quite small. And in some ways, the US already acts like more of a redistributionist state than canada does (in general, Canada has flatter effective tax rates, especially when you include VATs)

[giblets]

And in some ways, the US already acts like more of a redistributionist state than canada does (in general, Canada has flatter effective tax rates, especially when you include VATs)

Does that mean Ben might go back?

[KrazyHorse]

I think if the increases in taxes over that time period were broken down by European country it would be easier to see if there is a relationship or not. For example the UK did not increase taxes over that period, and still lost work hours.

UK public sector spending as a percent of economy went up ~5% over 1970-2004. Couldn't find the tax info. UK lost 7.5% hours worked over that period vs 20% for, say, france.

[Guynemer]

So, if we went into a Canada-style revenue system overnight, including the federal and provincial VATs, and peeled back our military "obligations" a bit, and rejiggered our health care spending into single-payer, we'd be golden?

Please be aware of the fact that I admit I know very little about high finance and whatnot.

[KrazyHorse]

Does that mean Ben might go back?

I hope so. I live in the US now.

[giblets]

UK public sector spending as a percent of economy went up ~5% over 1970-2004. Couldn't find the tax info. UK lost 7.5% hours worked over that period vs 20% for, say, france.

I was going by this