Tag Archives: MIT

Economists Agree – Illegality Increases the Street Price of Drugs

The University of Chicago’s Booth School of Business launched a website earlier this year titled The Initiative on Global Markets. The purpose of this website is to explore the extent to which economists agree or disagree on some of the major debates in the public policy arena. Specifically, 40 economists respond to a policy related question each week and their answers are then posted on the website.

In describing the process behind choosing the panel, the website states:

our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States.

This week’s question was

All else equal, making drugs illegal raises street prices for those drugs because suppliers require extra compensation for the risk of incarceration and other punishments.

93 percent of the economists on the panel either agreed or strongly agreed with this statement. Berkeley Economist Aaron Edline commented that “Illegality leads to high prices and crime.”  MIT economist Richard Schmalensee said that the answer to this question is “Basic micro” and that “Illegality also rules out some efficient forms of production & distribution.”

Other topics the questions have covered include treasury holdings, federal tax rates, voucher programs in the education system, exchange rates, stock prices, “buying American,” and healthcare.

Overall, I think this website provides a unique opportunity see where top economists stand on some important policy issues. It will be interesting to follow their answers to these weekly questions.

 

States Move to Revoke Tax Exemptions for Charities

Hawaii, Indiana, and Pennsylvania are a few of the states thinking about getting rid of the tax exemptions for non-profits. Steep declines in revenues have prompted states and counties to reconsider breaks for charities. States argue non-profits partake of government services but get a free ride on taxes, while charities claim that they are helping governments by providing services for the needy. Hawaii State Representative Calvin Say believes revoking exemptions for non-profits (as well as other tax-favored groups) could result in $500 to $750 million to help close the state’s $1.2 billion shortfall.

Revoking tax breaks is never popular. As the New York Times reports, the Payment-in-lieu-of-Taxes (PILOT) program used by many local governments evolved as a compromise. In 2005, Harvard and MIT brokered a deal with the city of Cambridge to pay $60 million over 20 years for city services in lieu of making property tax payments. (For more on PILOT programs see this 2006 Mercatus Center study by Frederic Sautet and John Shoaf).

Through tax policy, governments influence charitable activities and giving. The way exemptions are awarded or taken away can cause great controversy. For example, as states go on the hunt for revenues, some organizations, like churches, will remain exempt.

For a discussion of “The Politics of Giving”, see this month’s Reason for an interview with Adam Meyerson, President of The Philanthropy Roundtable.