Addendum to Hurriyet & Roubini columns: The Dukes of Moral Hazard

Here's an addendum to most recent Hurriyet column, which also appeared in Roubini Global Economics.

First, I got a couple of reader comments questioning whether there is indeed an amnesty. On the face of it, since the principal is not forgiven and adjusted with inflation, you could argue that this is simply a restructuring. But when you think about it, the government had to borrow for making up for unpaid taxes, and since the Treasury interest rate is higher than inflation, we are indeed faced with an amnesty...

Second, readers are asking whether it will work. Here, I will look upon the experience of my friends at Global Source / Turkey Data Monitor, who were practicing Turkish economists well before I had taken my first Economics course from Ray Fair:

• Up to 80% of debtors would enroll;
• Tardiness would remain in 10-20% range in the first year, only to accelerate to 60%
and above in the second and third years;
• A deduction roughly equal to amnesty payments will be made by tax payers in their
2011-2013 tax filings.

But even if the predictions of my buddies turn out to be pessimistic, one needs to remember the spillover effects of such amnesties. I already mentioned the moral hazard aspect in the column, but another equally important negative side effect is that such amnesties are putting honest/tax-paying businesses at a competitive disadvantage against their tax-evading competitors.

On the lighter side of things, here's another reader comment:

as one of your American readers, I would like to point out that perhaps you had this in mind when you referred to God and taxes? :)))) "'In this world nothing can be said to be certain, except death and taxes." -- B. Franklin

I know the Ben Franklin phrase, but for my purposes, the God and taxes one was much better. And for all that I know, that one is anonymous... I first heard it from the tour guide during my D.C. sightseeing tour (yes, we were passing by the IRS), but have heard it numerous times since then.

By the way, I know I am giving my secret enemy, who just resurfaced again (see the comment to the blog), more ammunition to pursue her claim that I have no analysis, just quotations. But whatever, and I'll deal with her later:) And speaking of her, I can not see how she also accuses me of not respecting other economists, when I quote decent economists like the TDM folks, Cevdet Akcay and the like so often. But I refuse to pay respect to a B.S. argument even when it is coming from a professor or chief economist of Zanzun Securities, which you probably guessed that I just made up but you get my point... And the same goes for shitty Econ. columns/ news articles, and if that's going to be miscellenous interventions on the daily press, so be it...

By the way way, all this was supposed to be posted to Facebook, when I shared the column, but I found out the hard way that Facebook comments have a character-limit just like Twitter. I had no idea, since I had not hit the wall before, but Facebook does not give any warnings, either. Or maybe they do, but I completely missed it.

By the way way way, I wrote another addendum when I posted the column to my blog a couple of days ago, so feel free to have a look there as well.