How many people today – especially professional pundits, professors, and politicians – believe simultaneously in both of the following propositions: (1) raising taxes on imports reduces the amount of importing activity significantly enough to cause noticeable increases in activities that are substitutes for importing (such as producing more of the high-tariffed goods domestically); and (2) raising taxes on incomes does not reduce the amount of income-earning activity significantly enough to cause noticeable increases in activities that are substitutes for income-earning activity (such as taking more leisure)?
In the English context we might ask this of Caroline Lucas. She who desires \”protection\” for local products and also higher taxes on \”the rich\”.
If it works for one then why not for the other? If tariffs reduce trade, why does income tax not reduce incomes?
Our only problem might be that Caroline\’s economic advisor is R. Murphy, retired accountant extraordinaire from Wandsworth. Who, when musing on this specific question, the influence of higher taxation on people substituting for leisure, managed to purport that married women would re-enter the labour force as a result of higher taxation. That is, that for married women in the income effect was greater than the substitution effect.
In direct opposition to every piece of empirical research which has been done on the subject. All of which shows that married women are more sensitive to the tax wedge than single women and all men. That they are more likley to choose leisure (or more likely, household production) as tax rates rise.
This was actually in a submission he made to The Treasury, which must have caused the odd giggle there.
So if we did in fact ask Ms. Lucas we\’d just get some entirely nonsensical gibberish from her economic advisor.