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Investment Tax Credit Makes Sense

by Travis Pantin
Mon, 21 Jan 2008 at 8:05 PM

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After posting a litany of objections to President Bush's fiscal stimulus plan, a professor of economics at George Mason University and blogger, Alex Tabarrok, concedes that some elements of the proposal make economic sense.

"One part of the stimulus package will probably be an investment tax credit which does have some good properties," he writes. "Unlike traditional fiscal policy an investment tax credit cannot be fully crowded out."

An investment tax credit works through changes in incentives, prompting people to invest more now, while times are tough, Mr. Tabarrok writes.

Moreover, an investment tax credit stimulates the most when it is expected to be temporary. "A temporary credit must be used now or lost while a permanent credit gives you the option to wait," he writes.

Wages Too High in Africa?
A professor of political science at Yale University and blogger, Christopher Blattman, writes that wages may be too high in Africa.

According to Mr. Blattman, African workers in the formal sector earn far more, relative to their cost of living, than equivalent professionals in China and India. If wages were to fall, he explains, more jobs would be created, which would benefit the African economy.

The phenomenon "could be keeping Africa from doing business globally," he writes.

Mr. Blattman suggests that governments and nongovernmental organizations may be causing the problem. They compete for the same pool of workers as private employers, he writes, but neither price their wages according to the local market. "It requires little imagination to wonder whether they set their wages higher than the market would normally do," he writes.

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