Econ-ity » January 26, 2016

Daily Archives: January 26, 2016

What do the taxes on vehicles say?

A quick look into custom duties of vehicles is enough to tell us how discouraging it is for any individual to purchase a car. For the vehicles that run on fossil fuel, the customs duties on 9 categories stand at 30% while that on the ‘Jeep, car and van’ category is almost three times that of other categories. Similar is the case with the electric vehicles. The customs on Jeep, car and van is 40% which is much higher than the 15% customs in other categories. The general belief that cars are luxury goods and should be taxed high seems the logic behind this. But, are cars luxury or high taxes have made them a luxury?  Higher taxes resulting into higher prices have made the cars less affordable to the middle and lower income class and thus only providing privilege to the rich. And, even if we regard them as luxury, are the rich only the ones who get to enjoy this luxury?

In the midst of current fuel crisis, promoting the use of the electric vehicle has become talk of the town. The customs on electric vehicles are definitely lower when compared to the vehicles that run on fuel, however, this rate seems still high for encouraging its use. If the uses of electric vehicles are really to be encouraged and promoted, the custom duty along with other taxes must be further reduced.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Sweden’s Secret to Prosperity

For those of us who have been told/taught (and quite a few of us are sold to the idea) that Scandinavia grew on the foundation of a big government and socialist policies, and that Nepal (and other developing countries) should adopt their model if we are to grow and prosper, Johan Norberg has some Swedish economic history to share with us. There is definitely more than meets the eye.

What follows are a few excerpts from the essay that will give us some glimpse into the modern economic history of Sweden.

The article argues,

For those who want to learn more, click HERE for the original essay.

150 years ago, “Sweden was a low-income country, poorer than Congo, with life expectancy half as long and infant mortality three times as high as the average developing country.”

1850-1950 was the era of laissez faire…the era of economic transformation lead by deregulation and free market… that’s when its economy grew…

“The real earnings of male industrial workers increased by around 25 percent per decade between 1860 and 1910, and life expectancy increased by 12 years. In total the real earnings increased by 170 percent in those fifty years, much faster than the 110 percent in the next fifty years. And as late as the turn of the century, central public expenditure in Sweden was around 6 percent of national income.”

“… between 1850 and 1950, Swedish income per capita increased eightfold, as the population doubled. Infant mortality fell from 15 to 2 percent, and life expectancy increased by a whopping 28 years.”
Between 1950 and 1970, Sweden still had a liberal trade policy…

“In the 1970s, with coffers filled by big business and heads filled with ideas from the international turn to the left, the Social Democrats began to expand social assistance and regulate the labor market. Public spending almost doubled between 1960 and 1980, rising from 31 percent to 60 percent of GDP, and high taxes accompanied them.”

Following it, “The average growth rate was halved to 2 percent in the 1970s, declining further in the 1980s, and that was before the big crisis in the 1990s. The currency had to be devalued five times to keep industry competitive, by a total of 45 percent. In 1990, the year before a serious economic crisis in Sweden, private enterprise had not created a single net job since 1950, but the public sector had increased by more than a million employees.”

“In 2000 just one of the 50 biggest Swedish companies was founded after 1970. “

“In the 1990s Sweden had another important reform period in response to sluggish growth and a severe banking crisis. Both Social Democrats and center-right parties contributed when marginal tax rates were reduced; markets for finance, electricity, telecom, and media were deregulated; the central bank was made independent; the pension system was reformed partly with personal accounts; private providers in health care and elderly care were welcomed; and a school voucher system was introduced. During the last few years, Swedish governments have reduced taxes substantially, from 52 to 44 percent of GDP, and abolished taxes on gifts, inheritance, wealth, and housing.”

“When Sweden liberalizes again, it will be going back to the future. That background—and that future—are the most important lessons from Sweden to the rest of the world.”

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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