Category Archives: economy

14/2/20: Pandemics, Panics and the Markets


In my recent article for The Currency I wrote about the expected market effects of the 2019-nCov coronavirus outbreak: https://www.thecurrency.news/articles/8490/constantin-gurdgiev-pandemics-panics-and-the-markets.


While past pandemics are not a direct nor linear indicators of the future expected performance, the logic and the dynamics of the past events suggest that while the front end short term effects of pandemics on the economies and the markets can be significant, over time, rebounds post-pandemics tend to fully offset short run negative impacts.

Key conclusions from the article are:

  • "...The market appears to worry little about public health risks, after their impact becomes more visible, although the onset of a pandemic can be associated with elevated markets volatility. This volatility is higher the faster the evolution of the health scare, but so is the market rebound from each crisis lows."
  • "This is not say that investors have little to worry about in today’s markets. We are still trading in the heavily over-bought market, and concerns about global growth are not getting much of a reprieve from the newsflows. The good news is, to date, the latest global health crisis does not seem to be a trigger for a major and sustained sell off. The bad news is, we are yet to see its full impact."

9/9/19: Ireland and OECD: Income Tax Rates Comparatives


Based on the OECD data for 2018, Ireland is the second worst OECD country to earn income from work at the upper margin of earnings (167% of the average annual gross wage earnings of adult, full-time manual and non manual workers in the industry), compared to lower earners (67% of the average wage earnings). And although this story is not new (we were in the same position back in 2014), the gap in effective marginal taxes charged on the higher earners relative to lower earners is getting worse.

Here is the chart for 2014 data:


And a comparative 2018 data:

Back in 2014, nine of the OECD countries had zero or negative upper marginal tax rate penalty on higher wage earners. In 2018, the number rose to ten. In 2014, seven countries, including Ireland, had a tax rate penalty on higher wage earners in excess of 10 percentage points. In 2018, that number rose to eight. Ireland ranked second in terms of tax penalty on higher labour income tax burden relative to lower income in both 2014 and 2018. In 2014, our relative penalty stood at 18.961 percentage points, 2.753 percentage points below Sweden. In 2018, our relative penalty was 20.974 percent, 3.04 percentage points below Sweden. The OECD average penalty was 5.31 percentage points in 2018, down from 5.57 percentage points in 2014.

It is worth noting that in Ireland, voluntary spending on healthcare (indirect tax) is roughly 50 percent higher than it is in Sweden (https://data.oecd.org/healthres/health-spending.htm). Ireland spends less than half what Sweden does on early childhood education per pupil, and about 60 percent of what Sweden spends on tertiary education per pupil (https://data.oecd.org/eduresource/education-spending.htm). In other words, higher taxes on higher earners in Sweden seem to be purchasing substantially more services for taxpayers than they do in Ireland. Sweden also has older demographics and a somewhat functional military. Ireland has younger (lower health spending) demographics and not much in terms of a military expenditure. Of course, Swedish parliamentarians earned EUR 6,269 per month salary in 2918, when their Irish counterparts were paid EUR 7,878, but that hardly explains the gaps in spending and taxation systems.

So where all this tax penalty or surcharge on the higher earners levied on Irish residents is being spent? Clearly not on better financed education or health services, and not on military.

Another interesting way of looking at the figures is by comparing the actual tax rates. For those on 67% of average labour income, Ireland's rate of taxation in 2014 was 37.7 percent or 3.92 percentage points below the OECD average,. This fell in Ireland to 35.72 percent in 2018, while the gap with OECD average rose to 6.29 percentage points. If you consider OECD average to be a realistic metric for tax burden on lower earners, Irish lower earners were more substantially undertaxed in 2018 than they were in 2014. For higher earners, disregarding the fact that Irish upper marginal tax rates kick in at an absurdly low level, for wage earners of 167% of the average wage, Irish tax rates were 56.66% and 56.70 percent in 2014 and 2018, respectively. This means that in 2014, Irish higher earners tax rates were 9.34 percentage points above the OECD average and in 2018 these were 9.38 percentage points above the OECD average. In both cases, higher earners were taxed more severely in Ireland when compared to the OECD average. The matters are similar if we were to run a comparative between Ireland and OECD median tax rates, so there is no point of arguing that OECD data includes 'outlier' countries.

On a personal note, I do not think comparatives between Sweden and Ireland paint the latter in any better terms than the former. However, if one were to look at the OECD figures as some objective measures of tax burdens, Irish lower and higher earners (labour income) are overtaxed by the OECD 'norms' (average and median). When one takes into the account a relatively scarce supply of services to the taxpayers as well as a relatively higher out-of-pocket costs of the services supplied, things appear to be even worse. This is not a value judgement. It simply down to the plain numbers.

3/6/19: Three Periods in labor Force Participation Rate Evolution and Secular Stagnations


The state of the global labor markets is reflected not only in the record lows in official unemployment statistics, but also in the low labor force participation rates:


In fact, chart above shows three distinct periods of evolution of the labor force participation rates in the advanced economies, three regimes: the 1970s into 1989 period that is marked by high participation rates, the period of 1990-2004 that is marked by the steadily declining participation rates, and the period since 2005 that is associated with low and steady participation rates.

This is hardly consistent with the story of the labor markets spectacular recovery that is presented by the official unemployment rates. In fact, the evidence in the above chart points to the continued importance of the twin secular stagnations hypothesis that I have been documenting on this blog.