The Moorish Wanderer

Tax Cuts. Yes, It Works, too

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on December 27, 2012

I was led to believe backing specific policies out of deliberate investigation was not about politics. Tax cuts are not particularly popular with those of my political persuasion down here in Morocco.

There is a lot to be discussed about the cognitive dissonance in electoral manifestos: low taxes, big social programs, no deficits, no debt, high growth, etc. and these are routinely enumerated regardless of ideological loyalties, with some nuances and priorities. You know how the alternate argument goes: electoral manifestos are window-dressing, there is a ‘permanent manifesto’ no one votes for, impervious to the weathercock of partisan politics, and based on solid McKinsey-made PowerPoint presentations. Yet even this perpetual grand design boast performing miracles at low costs, present, future, sunk, hidden or otherwise.

Tax Credit for investment do not have the same impact, but they are more persistent

Tax Credit for investment do not have the same impact on growth, but they are more persistent.

So what is new with tax cuts, and why would they be a better budget policy? First, because the stimulus effect delivered by a tax cut generates on average 8 times more growth than similar amounts engaged in a deficit-spending program; This is not a case against government spending, it is a reliable evidence that points to the inefficiencies of a one-sided stimulus program, which is usually favoured by the people I mentioned before. Targeted programs with prerequisite random experiments, smart regulation and rationality-based policies are the way to go (by the way, I have yet to read the results from testing programs launched under Mr Baraka when he was at MAGG, or Mr Boulif’s agenda)

And this leads me to the salient result from tax cut programs: not all tax cuts are created equal: Investment Tax Credits are by far the most effective policy, and the effect of a generic tax credit to investment produces on the long run a more persistent and net positive impact than any other exogenous shocks that boost productivity.

A caveat however: not all investment projects have these virtuous effects on growth. Expanding physical capital has some positive externalities, but not all physical capital generates it: building a research facility yes, banking on real estate development to create growth, not so much.

A quick look at the budget documents show tax credits allocated to the building sector amount to around 3Bn dirhams, and increased 4% in quarterly rate between 2011 and 2012 – so on the basis of these predictions, the expanded tax credit should have generated an additional .15 point to annual growth – a figure to compare with the sector’s growth, the lowest in positive sector growth. Of course, a rational explanation would state my model is not working. Another would assert tax credit are wasted on the building sector.

 

La “Relance”: Place aux Réductions d’impôts.

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco by Zouhair ABH on December 23, 2012

L’argument présenté ici compare l’effet de deux types de ‘relance’, la première classique, plutôt vieille école Keynésienne, à travers une augmentation des dépenses de l’administration publique, la second, aussi classique mais prenant en compte le fameux ‘long terme’, et qui correspond à des réductions d’impôts.

A première vue, les deux politiques sont équivalentes, et le résultat est initialement le même: le creusement du déficit budgétaire. Néanmoins, l’effet immédiat (puis étalé sur le temps) est significativement différent: en effet, une augmentation immédiate de 1% des dépenses des administrations publiques génère au mieux .07% de points de croissance annuelle additionnelle  au PIB. A titre d’exemple, l’augmentation de 5.8% des dépenses de l’administration entre 2010 et 2011 (dont une grande partie a certainement été motivée par une volonté politique de neutraliser des sources potentielles de mécontentement social) ont permis de gratter 4/10 points de croissance de relance, un résultat à ne pas confondre avec la contribution intrinsèque des dépenses du secteur public dans la formation du PIB – approximativement un point de pourcentage (Rapport Annuel Bank Al Maghrib – p.47)

La corrélation de -.32 indique le comportement anti-cyclique des dépenses budgétaires

La corrélation de -.417 indique le comportement anti-cyclique des dépenses budgétaires

La comparaison présentée ici ne cherche pas à démontrer l’inanité de d’un effort de relance en augmentant les dépenses budgétaires – après tout, les dépenses budgétaires sont réputées être anti-cycliques (ce qu’on observe bien avec le modèle artificiel) et le rôle principal d’une relance est de lisser les fluctuations économiques, plus particulièrement dans le cas d’une récession ou d’un ralentissement de l’économie domestique. En ce sens, l’interprétation politique des dépenses publiques (ou du déficit généré par une augmentation de celles-ci) se prête aux préférences du planificateur social ou de l’entité gouvernementale en équilibre décentralisé.

Cependant, il s’avère que pour ce type de politique budgétaire, le coût social de la grande volatilité des dépenses publiques, conjugué avec l’effet relativement modeste sur la croissance, permet de douter de l’efficacité d’une telle politique. D’un autre côté, il s’avère qu’un déficit réalisé par des réductions d’impôts (ou d’augmentation des crédits d’impôts – des dépenses fiscales) est plus efficace à stimuler l’économie. Ce résultat est dérivé à partir de l’égalité budgétaire augmentée: G_t + B_{t-1}(1+r)=D_t + T + B_tD_t est le déficit, qui est donc traité comme une recette fiscale. Cependant, des contraintes sont imposées sur la dynamique budgétaire, afin d’éviter une solution explosive (autrement, le budget peut se financer indéfiniment) on observe aussi que la formation du PIB valorise presque également la contribution du déficit et celle du stock de capital passé, si l’on considère une valeur convergente du déficit à 3% du PIB. Enfin, le rapport \dfrac{\alpha^{k_{t-1}}}{\alpha^{def_t}}\sim \beta = 0.9895

ce qui nous donne

y = 1.91 + .028 k_{t-1} - .038 r_{t-1} + .7 z_{t-1} - .006 \tau_{k_{t-1}} \pm .029 def - .0047 \tau_{w_t} - .041 \tau_c + .003 \tau_k + .028 \tau_i + 2.55 \epsilon_t

à noter que seul le terme positif \tau_i de l’ensemble des taxes est un crédit d’impôt, à travers lequel le budget gouvernemental alloue des ressources supplémentaires à l’accumulation du capital physique, l’investissement, dans l’équation décrivant la dynamique du budget, ce crédit d’impôt est effectivement une dépense fiscale.

By-elections: a Case Study

This is a great opportunity for me to apply some of the computations I have elaborated on when I started to lay out the 2016 electoral map.

Al Ahdath Newspaper mentioned 12 seats (from 10 districts) where up for a by-election by next week, and I cannot find all of these, as I have managed only 7, and 2 others I am not sure are indeed contested as well (both PJD). Or perhaps the 12 seats mentioned comprise also those in Tangier-Assilah and an additional seat in Marrakesh-Menara:

909/2012 PPS – Youssoufia

908/2012 PI – Sidi Kacem

907/2012 PA – Azilal-Demnate

906/2012 UC – Settat

905/2012 MP – Moulay Yacoub

888/2012 MDS – Chichaoua

878/2012 USFP – Inzegane Aït Melloul

858/2012 PJD – Hay Hassani

898/2012 PJD – Menara

As I have mentioned several times before, many parties have ‘marginal seats’, i.e seats with barely enough votes to cross the minimum electoral coefficient. And these are more likely than others to fall next election. And as it happens, a couple of these are in play: UC, PA, USFP and PPS could lose their seats with a few hundred votes. But, having a marginal doesn’t translate into a higher probability of losing the seat. Indeed, the following probabilities computed on the basis of each party’s past electoral performance show this is not systematic.

Union Constitutionelle member of parliament Abdellatif Mirdas  for Sidi Kacem, whose seat will be contested is a good example to illustrate my point. He has managed to get a little under 6,000 votes and was subsequently the bottom of the list, very close indeed to the 6% threshold (about 4,800 votes) and his local electoral performance was by any measure a very good one for his party. Yet for this by-election, his majority is very slim indeed. Assuming a turnout similar to 2012, he has an 85.58% chance of losing his seat; roughly the same likelihood of not making it to the 6% threshold. This is not a very informative probability because it is unconditional on the district itself; so there is a need to normalize this probability with local turnout, and how close the party candidate is to the 6% threshold. Adjusting for these elements, UC has therefore a little under 70% chance of losing the seat.

I would suggest this method is naïve Bayesian actually: the probability \mathbb{P}(V_t<V) denotes the probability of getting at most the same number of votes they have got in 2011. It is then finessed by taking into account local factors, and then conditioned (rather than just observed) on past electoral performance, local 6% threshold, turnout, etc: \mathbb{P}_j(V_t|V_{t-1})=\prod_{i=1}^{n}\mathbb{P}_{i,j}(N_{t,i}|\{N_{t-k,i}\}_{k=K}^{0})

The table below uses these computations for the three other parties, although the results for PA and MDS are not as statistically significant as I would like them to be, but it seems many of these seats are going to be very competitive, and many are very likely to change hands. I have also used the same method to compute the likelihood of the other parties whose seats are not marginals, with some tweaking, mainly by normalizing probability to present turnout and when applicable, threshold effect per seat.

Marginals_ByElections

Whatever the end result, there will be no big change in parliamentary caucuses – not the largest caucuses, any way. On the other hand, there is good evidence to suggest competitive by-elections in perhaps all but one district (MP- Moulay Yacoub) I will fire off a next blogpost offering some insight as to which parties enjoy the largest probabilities of carrying these seats.

الصندوق الأسود: من أين لك هذا؟

Posted in Dismal Economics, Flash News, Morocco by Zouhair ABH on December 12, 2012

و أخيرا عثرت على مقال يعطي رقما لما يسطلح عليه صحفيوا المغرب: ‘الصناديق السوداء’. لا أدري ما حصل للمادة 18 من مشروع قانون مالية ل2013 بين المصادقة عليه في مجلس النواب و إيداعه لدى مجلس المستشارين، لكن جملة المقالات في الصحف التي تتحدث عن صناديق تتهرب من محاسبة البرلمان بهتان، خصوصا حين يتم تشخيص هاته الصناديق بمبلغ 50 مليار درهم

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أظن أن أصحاب السلطة الرابعة يتحدثون عن الحسابات الخصوصية للخزينة، و التي فعلا رُسد لها 57 مليار درهم لسنة 2013. ما لم يقم به الصحفيون هو التفقد من نوعية هاته الحسابات و لا حتى التمعن في التعديل الطارىء على المادة 18

تدرج ضمن مكونات ميزانية الدولة، ابتداء من فاتح يناير 2015، المداخيل والنفقات الناتجة عن العمليات المتعلقة بحسابات الخزينة، التي يتم تدبيرها من طرف الوزارة المكلفة بالمالية، والتي لاترتبط بتطبيق نص تشريعي خاص أو التزامات تعاقدية أو اتفاقات دولية، أو بأموال خصوصية موضوعة رهن إشارة الدولة، أو بقروض ذات الأمدين القريب أو المتوسط، أو بتدبير سندات صادرة لفائدة الدولة وكذا بمداخيل أو نفقات مؤقتة في انتظار التنزيل النهائي لها (كما نقلها موقع لكم).ن.ت

مايعنيه أن معظم الحسابات سيتم إذماجها تدريجيا في الميزانية العامة (أي إلحاقها مثلا بالقطاعات الوزارية المختصة) و الإستثنائات واضحة: إما بقانون أو تعاقد دولي أو إقتراض

و للإشارة فقط، يتوصل كلا النواب و المستشارين بتقارير ملحقة تسرد تفاصيل “الصناديق السوداء” ما يعينه أنها ميزانياتها تناقش مثل كل الميزانيات الملحقة لقانون المالية. المشكل هنا ليس سحب ميزانيات من المراقبة البرلمانية (و المواطنة، لأن التقارير تنشر على موقع وزارة المالية) بل فقط إستثناء إذماج البعض منها في القطاعات الوزارية. فهذه الحسابات لن تتبخر في الهواء، و لن تصبح “صناديق سوداء’ اللهما تقاعس النواب عن إستفسار الوزير المكلف عنها. المشكل الحقيقي هو عدم فطن الأغلبية لتغيير في مادة من القانون بين مرحلتين من النقاش البرلماني، و ليست هناك أي مسطرة للوصول للمسؤول على التغيير (ما تكلم عنه موقع لكم) و محاسبته على القرار. الأغلبية مرتكبة لأن المسؤولية على عاتق رئيس البرلمان أو وزيرا المالية و الميزانية، في حين المعارضة سعيدة بهاته الفرصة لإحراج الحكومة. أما في ما يخص محاسبة مكونات ميزانية الدولة، فليس هناك أي خلق لصناديق سوداء، و 57 مليار مبلغ تافه حقيقة (مبلغ يعادل 16 في المئة من ميزانية الدولة) للتحدث عن أموال تتهرب من مراقبة البرلمان

Who Will Get The Big Job?

Posted in Flash News, Morocco, Read & Heard by Zouhair ABH on December 10, 2012

5 candidates are competing to replace the dean of representatives and incumbent USFP premier, Abdelouahed Radi. 5 candidates with similar and different views, no doubt. And I thought this is the chance to assume, then prove political agents in Morocco are capable of rational strategies and decisions – and that will be put to the test, on the weekend 14-16th of december.

This is textbook game theory, where the game is as simple as it gets: during USFP’s convention, the delegates from all over Morocco need to vote for the candidate they believe can lead them to victory in 2016, or at least be in position to share some of the spoils a strong contender generates. I would like to think the centre-left party would do some introspective thinking about its political philosophy, its alliance strategy, but the would-be leaders would be hard-pressed to deliver results. So, setting aside the assumption of a selfless leader eady to sacrifice their (his) political future for the sake of the party, I would posit all 5 candidates have every incentive to go for -at least implicitely- an immediate positive return.

As mentioned before, the voting game is about declaring preferences. So it is quite possible the next USFP convention would end up in a deadlock – although it has a very low probability of happening:

\mathbb{P}(deadlock)=1-\frac{\max {V}_{i=1}^5}{5!}

(5! is the factorial, with a value 120, as there are 120 different combinations of listing preferences)

and even lower probability if USFP delegates are very adverse to rowdy convention outcomes (and recent history shows), ie. u\left[\mathbb{P}(deadlock)\right] where u(.) is strictly concave to denote this risk aversion.

For each delegate thus, there is a ranking, I would like to add to a small constraint: the delegate has a strong preference for the first choice, their candidate, and then enunciate weak preferences for the remaining four:

V_1 \succ V_2 \succeq V_3 \succeq V_4 \succeq V_5

An equilibrium (the election outcome) does not necessarily mean a majority of delegates select the same first choice. To illustrate this, assume the rules of elections have been altered. Instead, the party convention will go through 5 ballots, each candidate is submitted to approval or rejection. The equilibrium here depends on the candidate order. This step is simply internalised by each and every delegate: they weigh in different outcomes, and eventually come up with a choice that maximizes a series of objectives (party victory, personal gain, idealistic aims, etc.) their respective preferences are solved using backward induction.

Since party convention rules for two ballots, preferences will be broken down in first-hand choices, and second-hand choices if the former fails.

Let us now consider more down-to-earth elements of this election: presumably, USFP needs a strong leader to measure up to Hamid Chabat, or Hakim Benchemas, or indeed the Head of Government, Abdelilah Benkirane. Meaning their next Secretary General has to adopt opposition-like strategies, including:

1/ Very active and visible on the media

2/ Established access to the same media

3/ A member of parliament (MP)

Point 2 and 3 are correlated – a member of parliament has a privileged access to mainstream media an outsider lacks. As it turns out, this rules out two candidates, Fathallah Oualalou and Mohamed Talbi (Zaidi, Lachguar and Malki being all three representatives) to be first choice for a whole lot of delegates. In fact, the weight party delegate allocate to this quality (being an MP) is roughly equal to the percentage of those delegates whose preferences are based upon that criterion: what is the probability of choosing a member of parliament as a first choice. answer: 60%. That is not to say 60% of the delegates will chose between Zaidi, Lachguar or Malki, but each delegate has a 60% chance of of choosing one of these candidates. But since it is expected some 1200 delegates will attend the convention, my assumption would be that 720 delegates will vote for one of the three ‘premium candidates’, and then scramble for the remaining 480 that votes primarily for the two other candidates, on the second ballot.

Let me make an assumption about the 480 ‘idealists’: presumably, a large percentage of those will vote for Fathallah Oualalou, and his votes will be crucial for the two parliamentary contenders. Notice I mention two, and not three. The proof is in three steps: first, assume all three candidates have equiprobability of getting the 720 votes – this means on average each one gets 240. A winner needs to get at least 361 additional votes, so the other 480 votes are not going to be split evenly across the first three contenders, which means only the first two of the parliamentary contenders really matter.

The crucial player in the two-ballots game is thus M. Oualalou: if he comes in second or first in the first ballot, he will be elected on the second,his support has every incentive to stick by him, in addition, support from his parliamentary competitor’s rivals will consolidate his lead. This is based on the assumption that delegates supporting a parliamentary candidate on the first ballot rank the other two behind M. Oualalou.

On the other hand, if M. Oualalou comes in as a third candidate, his support might make a difference. This is because one of the parliamentary contenders in the run-off could be too polarizing, and even support transferred from M. Oualalou might not be enough. This leads me to lay out some assumption about M. Driss Lachguar, whose own record shows he can be a serious contender, but his polarizing figure could produce a backlash and elevate another, ‘Dark Horse’ candidate to the Premier position.

In many respects, Mr. Lachguar is favoured to be USFP’s next boss: he is a member of parliament, has been involved in the decision to withdraw USFP from coalition talks and join in the Opposition, and rattled sabres over the appointment of M. Karim Guellab as Speaker of Parliament House. Yet many party delegate might not be interested to vote for him on the second ballot (that is, if he makes a first, or close second) and could vote for another, less illustrious candidate in an “Anti-Lachguar” stampede. And yet, there is a chance a Lachguar-Oualalou ticket might get a win, provided the following conditions:

1/ Lachguar supporters stick by him on the second ballot
2/ There is a common pool of Lachguar-Oualalou supporters
3/ Lachguar supporters are expected to cast slightly more votes than Oualalou’s

In fact, the minimum number of Oualalou supporters among the 480 delegates ready to switch on the second ballot, described earlier would be:

240+480\times\alpha-\alpha^2\times (V_{FO},V_{DL})

(this is assumed to differentiate between core Oualalou supporters and those likely to switch support to Lachguar

a simple FOC gives: \max_\alpha V(FO,DL)= \dfrac{\partial V(FO,DL)}{\partial \alpha}=0 yields \hat{\alpha}=19.1\% so Lachguar only needs 20% of Oualalou’s supporters to throw their support behind him to win the ballot, should Lachguar come a close first or second.