Should I Be Grateful If a Thief Returns Half the Money S/He Stole?

Consider the following scenario:

A thief steals $2000 from me. I then spend $500 to retrieve the money from the thief, who also spends $500 trying to keep me from retrieving my money. In the end, I get $1500 back from the thief, for a net return (after my own expenses) of $1000.

I should be grateful and thank the thief? Lots of people seem to think so.

At least that's what this article in our local newspaper seemed to be saying.

Arena gets $2M boost

Central Huron benefits from Federal-Provincial grant

The Clinton arena is on the receiving end of $2 million in infrastructure grants for a $3-million renovation plan.

Local dignitaries, including Huron-Bruce MP Ben Lobb and Huron-Bruce MPP Carol Mitchell, were on hand at the official announcement of joint federal and provincial funding to improve community recreational infrastructure through the Recreational Infrastructure Canada program and Recreation Ontario.

“This is a great thing,” says Central Huron Reeve Bert Dykstra. “It helps communities to grow and foster recreation as a great part of that growth. It keeps people in the community and keeps people healthy.”...

The federal and provincial gubmnts tax us. And then we use tonnes of scarce resources that could have been used for something else to compete with people from other municipalities to try to get some of our (and their) tax dollars back.

It's a negative sum game and a classic example of the prisoners' dilemma: if we don't play it, we still have to pay our taxes but other municipalities will get the money. And if we all play the game, the size of the pie gets smaller because the gubmnts use some of our tax dollars to assess our rent-seeking applications for funding and because each municipality spends money on the rent-seeking funding applications.

 If we all kept our money, and if we refused to let federal and provincial gubmnts fund local projects, the municipalities would all have more money in total. And then the local gubmnt officials could make it clear what the local taxes might or might not be paying for. Getting the feds and province involved just increases the obfuscation of what is really going on.

Meanwhile, the federal and provincial politicians show up and take credit for this farce. What if, instead, they stood up and said,

We took your money in the form of taxes, and now after considering all the costs involved, we're giving half of it back to you. Aren't we great?

They'd be laughed out of town. And they should be.

Comments

[Brent Buckner]

Rink-seeking behaviour.

[Ben Singer]

Professor, while the analogy is a good one, I think its an oversimplification. If the money that was taxed then given to the municipalty to construct the arena was never taxed, how would it be collected from the residents? If it were collected voluntarily, citizens have little motivation to contribute, as they could, theoretically, not pay in but use the community resource. Or, if the municipality makes it mandatory, it is little different than the tax that was collected by the feds. The only question is one of transaction costs, and I would guess that it is simpler (and less costly in effort and man-hours) for the feds to collect and distribute than for all three levels of gubmnt in each jurisdiction to collect their own taxes.

[EclectEcon]

Ben,
If you think it was an oversimplification, let me deal more directly with your questions. My thought when I wrote the blog had been that since municipalities collect taxes anyway, and since the feds and the provinces collect taxes anyway, the transaction costs of having the feds and provinces collect lower taxes and having municipalities collect more taxes would be a wash.

So clearly, I was thinking of having the municipalities fund arenas with municipal taxes. I don't see that any public-good or externality argument would extend much beyond the town borders, if at all, and so these arguments for having more extensive forms of gubmnt provide funding for an arena don't seem very persuasive.

But pushing it further, why should municipal taxes be used to provide arenas? The arenas I know of charge the people who use them (obviously less than the full costs). Why not insist that they charge higher fees (to cover the full costs)? Why should taxpayers who don't use the arenas subsidize those who do? Are the externality/public good arguments for public subsidies really that strong? I'm skeptical.

[Jerome]

What do you think of Personal Seat License schemes as a system of funding sports arenas?

[Mike Moffatt]

"If you think it was an oversimplification, let me deal more directly with your questions. My thought when I wrote the blog had been that since municipalities collect taxes anyway, and since the feds and the provinces collect taxes anyway, the transaction costs of having the feds and provinces collect lower taxes and having municipalities collect more taxes would be a wash."

Except it isn't, because there's a huge amount of re-distribution going on, with urban centres highly subsidizing rural ones.

[Ben]

I was under the impression that all (income) taxes are collected at the same time and redistributed by a central authority. Federal gubmnt grants mean a municipality is getting more than its regular share, ostensibly in exchange for promoting something the Feds want promoted. I'd be curious to how much time/money (resources) were spent on the application. I know that Toronto's application for federal stimulus money probably didn't cost a lot, considering Mayor Miller didn't bother to read the guidelines... Actually, it cost us a lot, insofar as 'we' refused to play that zero-sum game you describe.

I've never heard of a private/full-cost arena. I doubt it would succeed because of competition from public arenas, especially because it would be hard to offer something better than what the public sector offers - so long as there's a zamboni, a rink is a rink.

Public funding of arenas might have something to do with the high cost of ice sports (skates, hockey pads) and an attempt by gubmnt to promote the idea of Canadian sports, like hockey or figure skating. I was recently reading about the decline of Hockey in immigrant-heavy areas of the GTA, mainly due to the high entry costs. However, this may be an after-the-fact justification rather than a premeditated intention.

[Steko]

This entry equates taxes to theft in a sneak way then comes back to moralize about how ironic it is to thank the "thief". The error is compounded by insinuating that 25% of the monies are wasted in application fees, why not use 1% or 0.1% for the example? I guess it wouldn't sound as menacing.

A better analogy:

I have a membership at a country club.
There are many facilities e.g. golf, tennis, restaurant, bar, billiards etc.
There are usage fees for many of these in addition to the club dues.
There are some paid administrators who are chosen to run the club by it's members.
Excess dues after upkeep can be (1) returned to the members, (2) invested for the financial safety of the club, (3) used to expand the facilities.
The members may be consulted and may propose applications. There is so overhead to the review, as might be expected.

At any rate, sometimes (3) is chosen. That may not sit well with some members of the club. Well too bad for them -- maybe they should have been more persuasive when it came time to choose country club administrators or in explaining why such uses of the reserves were suboptimal choices.

[EclectEcon]

Steko,

Let's extend your analogy a bit. Let's think of the local country club as analogous to the local gubmnt. Then suppose the province taxes each local country club and makes them apply for funding for various projects. In the process, there will be some wealth redistribution, of course, but there will also be CONSIDERABLE use of scarce resources in the application process and in the adjudication process. Overall there will be less available for country clubs and more use of the funds by people who are good at fund-raising.

My problem with this scenario is that we encourage too many scarce resources to be devoted to rent-seeking.