OPINION – Coupon economy

OPINION – Coupon economy

The government has recently announced several measures meant to support the economy in these troubled times. Most of the actions prolong what has been done before, with all its virtues and limitations. That is the case of the so-called “pecuniary contribution” and a flurry of tax exemptions. They are in practice tax reductions and increase the available income for families.

But they keep with previous practice, and whatever changes they induced when first introduced, they are likely to have been integrated into the behavior of economic agents by now. We should not expect significant new economic impacts originating from those quarters.

(As a side note, to describe the amounts budgeted for that and similar measures as ‘government investment’ might wisely be avoided for the sake of language clarity and terminology accuracy)

The most innovative approach in the program is the way incentives to consumption are structured.  Last year, they took the form of a consumption card distributed to residents with a predefined amount. Again, on aggregate, that also amounts to another tax reimbursement, made in a way that purportedly stimulates consumption. 

Overall, the outcome may have been more modest than anticipated, and the changes in the system introduced this year somehow suggest that much. But that is a separate issue not dealt with here.

The new system (again confusingly presented as a government investment) involves the attribution of coupons for future consumption, involving a more complicated procedure.  The avowed purpose is to induce additional families’ expenditure and, implicitly, lead to what in economic jargon would be described as multiplier effects. 

The new system was received with some surprise and some criticisms, prompting the government to announce that it would reassess and, possibly, fine-tune the respective arrangements. 

The first impression the coupon system gives away is an increased complexity without an immediately obvious benefit.  The additional economic impetus provided by the system may be lesser than expected.

The press release expressly mentions the inspiration in the so-called “consumption carnivals.” Whether that concept provides an apt model for the families’ spending behavior is an open and debatable question. 

The official press release also states the proposals are the outcome of many studies and analyzes. Broader knowledge about their purpose and assumptions, and the specific foundations they provide for the proposed measures, might contribute to a better understanding and, possibly, some refinement of the tools used.

Published at Tue, 23 Mar 2021 04:11:21 +0000