Wednesday, June 27, 2007

Signs along the way: coast to coast

On my recent trip to BC, I saw many incredible signs. Sadly, my first spotting of "We accept $US at par" (an ice cream shop in Tofino, BC) and "$8.50 bacon and eggs" (in small Calgary diner) were both so surprising that I did not get a picture. However, other cool (at least cool to me) signs made the list.

For everyone that has driven a K car, O'yeah: this is funny.

I can't believe I saw this, but I did ... gee whiz.

Friday, June 22, 2007

Should mortgage interest costs be tax deductable?

On my first day of vacation, traveling from Halifax to Calgary (on my way to Tofino), I began reading the Friday copy of the Globe and Mail and I found a small (and rather hollow) article, “ Actuaries call for tax breaks on home mortgage interest ”, as a way to increase the net wealth of babyboomers. For fun, let’s walk through the implications of the actuaries’ suggestion.

On a $200,000 home, with a borrowing cost of 6.0%, the interest paid on a 25 year mortgage pays about $183,293; multiply that number by your tax rate (say 35%) and you have a whopping amount of savings (just over $64,000 over 25 years). This type of plan would have several effects (follow the step by step causality): (i) it would lower the cost of purchasing homes because the effective interest paid (and thus the mortgage) is lower; (ii) this would increase the demand for housing (for a given level of income), (iii) which would intern increase the price of the new and existing housing stock; as demand responds to the lower carrying cost of owning a home, higher demand would increase prices. Homeowners, therefore, would win! Not only do they now have a huge tax deduction, but the net worth of their home would rise, increasing their net wealth. How much would housing prices rise by such a policy? Well, I would think it would rise by exactly the amount of the savings from the tax deduction once the change has been fully priced in … which could take anywhere for 2 to 4 years.

Overall, this policy would effectively transfer wealth from the government, or equivocally from every tax payer, to every homeowner. Because this policy would make homes more expensive, it would only benefit existing homeowners over time (and in the very short-term new home owners would get a deal until demand pressures pushed up prices).

Furthermore, it would (over time) increase rental costs. Although the tax deduction is only on primary residence, overtime, the price increases of primary residence would change the opportunity cost of renting units or selling them as primary residences – just think of the transformation of apartments to condos as an example.

In the end, what this looks like is a transfer of wealth from non-homeowners and corporations (or stock-holders) to homeowners. Does this sound like taking from the poor and giving to the rich? Well, I think it does a little. Perhaps think about it this way: instead of giving homeowners a $64K refund on their mortgage costs, we could use that money to pay a nurse's full year’s salary (for ever 25 homes we could employ one RN for 25 years), or even better increase the Old Age Security payments to the poorest elderly? If we are really concerned about helping babyboomers who have not saved enough money for retirement, I think we can think of better policies then this one. Personally, I think that Government programs like the Old Age Security could be broadened or beefed up.

Tuesday, June 12, 2007

Carbon Tax in Quebec: Go Pigou!

As I have said over and over again , I am supportive of putting a tax on fossil fuel consumption to reflect the cost (the public cost) of consuming fossil fuels. I think we need to raise the price of gas, and funnel the funds into public transit, research, and playing around with incentive structures (that would be fun!). Well, Greg Mankiw's Pigou Club got a reason to celebrate (a least a little) last week when Quebec added a tax on gasoline and electricity! Mankiw was impressed ( see here ). As nicely reported on Bloomberg : " Refiners including Valero Energy Corp.'s Ultramar unit and Royal Dutch Shell Plc's Canadian unit will start paying a tax of 0.8 cent a liter on gasoline and 0.9 cent on diesel on Oct. 1. Power producers such as state-owned Hydro- Quebec and gas companies will also be taxed. " (should that say province-owned?) Although this is not a large tax by any means, it is a start that will generate $200 million a year for measures to reduce greenhouse gas emissions.

Although, to be honest, I do not think that 0.8 cents a liter will do very much in the way of reducing consumption, this is the first of its kind in Canada and I hope that Quebec voters are supportive of the idea. As for me, I hope to walk to work tomorrow (if the rain ever stops ... O'Halifax).

Sunday, June 10, 2007

Where to eat in Halifax!

The Canadian Economics Association conference was in Halifax (at Dalhousie) a couple of weeks ago. I send the following email to a few fellow modellers, and I thought I would also share it with you (to get me back on the blogging bandwagon). Please note the Tom's Little Havana did not make the list of places to visit because of limited seating or maybe because I wanted to keep it for myself (unless you know it is there you might never find it).

Here is a short list of my favourite places in Halifax. I hope it is helpful to all future visitors to the city.
Doing something at Dalhousie? Here are two places near campus:
Saege has won The Coast's (the weekly what-where of Halifax) award for the best new restaurant and is labelled "Where to Eat in Canada". I suggest that you book in advance. It is about 10 mins on foot from campus, but worth the hustle (5883 Spring Garden Road , 429-1882).

A distant second is the Coburg Coffee House: if a hummus and cucumber bagel and a free trade coffee is your taste, this is your best choice for lunch near campus (6085 Coburg Rd, 429-2326).
Every where else on my list is downtown (about a 20 mins walk from Dalhousie Campus). All of these places also serve dinner and lunch.

Three choices in the medium-end price range:
(1) I am a fan of Greek food and, in Halifax, OPA is the place. Reserve in advance; try the lamb and the taramasalata. (1565 Argyle St, 492-7999)
(2) The Wooden Monkey: this restaurant is a local gem. The food is top of the line; all organic; the wooden tables are from fallen trees in Point Pleasant Park <>; they make a special effort to source locally. Also, it's a little hip. (1685 Argyle St, 444-3844)
(3) Sweat Basel is a little more costly; a little fancy; well worth it. It offers some unique dishes in a variety of tastes. If you go here, plan to have dessert (locally made by the people that made my wedding cake). (1866 Upper Water St., 425-2133 )

Here are a few places that I have gone for dinner, and stayed all night. All of these places: (i) are located downtown; (ii) serve great beer; (iii) serve good food; and (iv) are my favourite places to go on a Friday or Saturday night. You may want to visit them all, or stay one place for a whole evening discussing price-level targeting.
The Henry House: An old style pub. Go downstairs for even more atmosphere (I love old stone); and yes: order the Ringwood (brewed on location). On a quiet night, I can play darts here: sadly, it is often too full to play. (1222 Barrington Street, 423-5660)
The Old Triangle: my favourite bar in Halifax . Why? The Belfast Burger; it's an Irish pub (they pour a mean Guinness); and it's the best place to hear Nova Scotian music. This place is busy; sometimes standing room only. (5136 Prince St., 492-4900)
The Economy Shoe Shop: the atmosphere is artsy; cool; relaxed. When Sean Penn comes to down, this is where he goes (if you like nachos late on a Saturday night: this is the place). (1661-1663 Argyle St, 423-7463)

I would recommend also consulting the list provided here It provides a nice selection of places.