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That was a fascinating read! I love when things like this happen and some new emergent behaviour appears that was unexpected. This did end up much better than

That was a fascinating read! I love when things like this happen and some new emergent behaviour appears that was unexpected. This did end up much better than most perverse incentive situations. In fact, I'm not even sure I'd call this a perverse incentive but maybe I'm musinderstanding the definition.

gwern 8y ago
I consider it perverse because it incurs overhead in making the payments (eg if you send a town $100, get back a gift card for $100, and cash it for $97, that's $3 burned for nothing whatsoever than if they could've just transferred $100 into your bank account or not taxed it in the first place), deadweight loss in gifts (you don't value those hometown meibutsu at their market value to other people), overhead from the incentivized marketing competition (ad campaigns aren't free), and of course, the existence of a competition at all means that the hometown which incurred the expenses of rearing/educating you in the first place probably isn't going to get your tax revenue because they don't offer anime pineapple rewards or whatever is hip at the moment. None of that was intended nor is it useful. Interesting & amusing, but not useful. (And anyway, I had to title it something. 'Japan's Hometown Tax' makes it sound unutterably boring & technical, when the second-order effects are what's interesting.)
- avar 8y ago
  It's only perverse and pointlessly burning money if you exclusively look at it from an economics perspective, but most countries have some sort of highly politicized redistribution mechanism, so it's also a sociological and political question. I.e. you can look at it like an accountant and consider it a 3¢ loss for every $1, or you could consider that perhaps a system like this increases societal goodwill towards redistributing money to poorer parts of Japan. If it wasn't for that goodwill would you have $1 to work with in the first place? Or would political opposition to the redistribution already have cut that down to 90¢?
  - gwern 8y ago
    I struggle to see what beneficial social effects there are from most people cynically ticking a box on a website to get half back as a gift card they immediately sell for 97% face value. The original intent of the tax program in compensating rural areas, yes; what it has morphed into, no.
    - thaumasiotes 8y ago
      Well... > Widespread gaming or no, the system pretty much works according to the internal aims. Cities get a list of their internal diaspora, and do make considerably more effort to stay in touch with them than they did previously. (This includes lovely holiday cards and sometimes even I-can’t-believe-they’re-not-alumni-magazines.) You really do get plums from childhood in your mail from your hometown (if you don’t optimize for cash equivalents). Cities with declining local tax bases really do get enough money to do material projects with. Tokyo takes a hit to revenue but can afford it.
      - int_19h 8y ago
        The claim isn't that it doesn't work, but that the overhead is substantial, and those same goals could be reached with far less. I think it's self-evident from the description of the scheme - you could come up with a much more straightforward tax-and-redistribute scheme with less overhead.
        deleted 8y ago
        [deleted]
        thaumasiotes 8y ago
        But the overhead, as noted in the OP, is about 3% of the money transfer. That's low. You could say that hometown marketing and alumni magazines are "overhead", but you can't say that at the same time you're listing them as a beneficial effect of the program.
        8y ago
- thaumasiotes 8y ago
  It seems like the overhead of the system is paid for out of the tax savings you get by participating in the program. As I understand it: 1. Earn $2000 in Tokyo. 2. Owe $200 to Tokyo. 3. Donate $80 to Gifu. 4. Receive $40 from Gifu. 5. Liquidate gifts for $38.80 You just saved almost 20% on your income taxes. This presumably lowers the deadweight loss associated with them. Does it lower it by more or less than the 3% loss you take converting gift cards to cash or more appropriate gift cards? Don't double-count the 3% "overhead" of liquidating a gift card and "deadweight loss in gifts"; those are the same thing: > You really do get plums from childhood in your mail from your hometown (if you don’t optimize for cash equivalents). Also: > and of course, the existence of a competition at all means that the hometown which incurred the expenses of rearing/educating you in the first place probably isn't going to get your tax revenue because they don't offer anime pineapple rewards With a legal cap on return gifts at 50% of donated value, this shouldn't be the case. You can donate anywhere and you'll get exactly the same return; why wouldn't you donate to somewhere you liked?
  - Retric 8y ago
    When you can just lower tax revenue by 40$ and keep 40$, a system that lowers tax revenue by 40$ and only gives you 38.80$ is less efficient. Why does someone else not you get that 1.20$ from your income? Remember, long term the government ends up raising the taxes to cover that 40$ and your just out 1.20$ for zero gain. On top of that even if you kept the full 40$, the dead weight loss of extra paperwork is pure economic waste.
    - thaumasiotes 8y ago
      So the effects of the program are: 1. Lower Tokyo's income tax by 20% 2. Transfer 25% of Tokyo's (reduced) income tax out to rural areas chosen for sentimental reasons. 3. Incur overhead costs of 3% of the value transferred. This seems comparable to what you'd pay to directly transfer through Square. It strikes me as a little excessive to look at this list of effects and condemn the system as "perverse".
  - gwern 8y ago
    > You just saved almost 20% on your income taxes. This presumably lowers the deadweight loss associated with them. Does it lower it by more or less than the 3% loss you take converting gift cards to cash or more appropriate gift cards? If any tax dodge which feeds money to third-parties to exploit a loophole while doing nothing productive on its own is efficient, the problem is with the tax rates in the first place. To say that an elaborate charade involving indirectly buying plums or gift cards through tax rebates is 'efficient' and 'the overhead of the system is paid for' is quite a claim and not obvious, let us say. > Don't double-count the 3% "overhead" of liquidating a gift card and "deadweight loss in gifts"; those are the same thing: I was referring to the non-monetary gifts like the products or grave visits. As far as the gifts go, the gift cards are probably the least harmful as they 'only' have a 3% overhead involved in turning them (back) into cash (plus whatever else goes into redeeming them, I suppose, in terms of time/effort/hassle/delay), which is probably a lot less than most of the others. > With a legal cap on return gifts at 50% of donated value, this shouldn't be the case. You can donate anywhere and you'll get exactly the same return; why wouldn't you donate to somewhere you liked? Because what are the odds that the place which incurred the expenses of educating you, out of the hundreds of competing muncipalities, large and small, near and far, naive and sophisticated, meibutsu vs trips vs gift cards, high or low, will give you exactly the right thing and win the competition, and this will happen in almost every case and produce the same net flows as simply sending the rebates to, say, people's registered birthplaces?
sonnyblarney 8y ago
The perverse bit is the tax-kickback. Everything else is interesting!

gwern 8y ago

I consider it perverse because it incurs overhead in making the payments (eg if you send a town $100, get back a gift card for $100, and cash it for $97, that's $3 burned for nothing whatsoever than if they could've just transferred $100 into your bank account or not taxed it in the first place), deadweight loss in gifts (you don't value those hometown meibutsu at their market value to other people), overhead from the incentivized marketing competition (ad campaigns aren't free), and of course, the existence of a competition at all means that the hometown which incurred the expenses of rearing/educating you in the first place probably isn't going to get your tax revenue because they don't offer anime pineapple rewards or whatever is hip at the moment. None of that was intended nor is it useful. Interesting & amusing, but not useful. (And anyway, I had to title it something. 'Japan's Hometown Tax' makes it sound unutterably boring & technical, when the second-order effects are what's interesting.)

avar 8y ago
It's only perverse and pointlessly burning money if you exclusively look at it from an economics perspective, but most countries have some sort of highly politicized redistribution mechanism, so it's also a sociological and political question. I.e. you can look at it like an accountant and consider it a 3¢ loss for every $1, or you could consider that perhaps a system like this increases societal goodwill towards redistributing money to poorer parts of Japan. If it wasn't for that goodwill would you have $1 to work with in the first place? Or would political opposition to the redistribution already have cut that down to 90¢?
- gwern 8y ago
  I struggle to see what beneficial social effects there are from most people cynically ticking a box on a website to get half back as a gift card they immediately sell for 97% face value. The original intent of the tax program in compensating rural areas, yes; what it has morphed into, no.
  - thaumasiotes 8y ago
    Well... > Widespread gaming or no, the system pretty much works according to the internal aims. Cities get a list of their internal diaspora, and do make considerably more effort to stay in touch with them than they did previously. (This includes lovely holiday cards and sometimes even I-can’t-believe-they’re-not-alumni-magazines.) You really do get plums from childhood in your mail from your hometown (if you don’t optimize for cash equivalents). Cities with declining local tax bases really do get enough money to do material projects with. Tokyo takes a hit to revenue but can afford it.
    - int_19h 8y ago
      The claim isn't that it doesn't work, but that the overhead is substantial, and those same goals could be reached with far less. I think it's self-evident from the description of the scheme - you could come up with a much more straightforward tax-and-redistribute scheme with less overhead.
      - deleted 8y ago
        [deleted]
      - thaumasiotes 8y ago
        But the overhead, as noted in the OP, is about 3% of the money transfer. That's low. You could say that hometown marketing and alumni magazines are "overhead", but you can't say that at the same time you're listing them as a beneficial effect of the program.
        8y ago
thaumasiotes 8y ago
It seems like the overhead of the system is paid for out of the tax savings you get by participating in the program. As I understand it: 1. Earn $2000 in Tokyo. 2. Owe $200 to Tokyo. 3. Donate $80 to Gifu. 4. Receive $40 from Gifu. 5. Liquidate gifts for $38.80 You just saved almost 20% on your income taxes. This presumably lowers the deadweight loss associated with them. Does it lower it by more or less than the 3% loss you take converting gift cards to cash or more appropriate gift cards? Don't double-count the 3% "overhead" of liquidating a gift card and "deadweight loss in gifts"; those are the same thing: > You really do get plums from childhood in your mail from your hometown (if you don’t optimize for cash equivalents). Also: > and of course, the existence of a competition at all means that the hometown which incurred the expenses of rearing/educating you in the first place probably isn't going to get your tax revenue because they don't offer anime pineapple rewards With a legal cap on return gifts at 50% of donated value, this shouldn't be the case. You can donate anywhere and you'll get exactly the same return; why wouldn't you donate to somewhere you liked?
- Retric 8y ago
  When you can just lower tax revenue by 40$ and keep 40$, a system that lowers tax revenue by 40$ and only gives you 38.80$ is less efficient. Why does someone else not you get that 1.20$ from your income? Remember, long term the government ends up raising the taxes to cover that 40$ and your just out 1.20$ for zero gain. On top of that even if you kept the full 40$, the dead weight loss of extra paperwork is pure economic waste.
  - thaumasiotes 8y ago
    So the effects of the program are: 1. Lower Tokyo's income tax by 20% 2. Transfer 25% of Tokyo's (reduced) income tax out to rural areas chosen for sentimental reasons. 3. Incur overhead costs of 3% of the value transferred. This seems comparable to what you'd pay to directly transfer through Square. It strikes me as a little excessive to look at this list of effects and condemn the system as "perverse".
- gwern 8y ago
  > You just saved almost 20% on your income taxes. This presumably lowers the deadweight loss associated with them. Does it lower it by more or less than the 3% loss you take converting gift cards to cash or more appropriate gift cards? If any tax dodge which feeds money to third-parties to exploit a loophole while doing nothing productive on its own is efficient, the problem is with the tax rates in the first place. To say that an elaborate charade involving indirectly buying plums or gift cards through tax rebates is 'efficient' and 'the overhead of the system is paid for' is quite a claim and not obvious, let us say. > Don't double-count the 3% "overhead" of liquidating a gift card and "deadweight loss in gifts"; those are the same thing: I was referring to the non-monetary gifts like the products or grave visits. As far as the gifts go, the gift cards are probably the least harmful as they 'only' have a 3% overhead involved in turning them (back) into cash (plus whatever else goes into redeeming them, I suppose, in terms of time/effort/hassle/delay), which is probably a lot less than most of the others. > With a legal cap on return gifts at 50% of donated value, this shouldn't be the case. You can donate anywhere and you'll get exactly the same return; why wouldn't you donate to somewhere you liked? Because what are the odds that the place which incurred the expenses of educating you, out of the hundreds of competing muncipalities, large and small, near and far, naive and sophisticated, meibutsu vs trips vs gift cards, high or low, will give you exactly the right thing and win the competition, and this will happen in almost every case and produce the same net flows as simply sending the rebates to, say, people's registered birthplaces?

sonnyblarney 8y ago

The perverse bit is the tax-kickback. Everything else is interesting!