More on the Economic Effects of the NHL Lockout

The general theme of this article is that because NHL hockey teams have not been playing, city-owned arenas and parking lots have been receiving considerably less revenue [Thanks to BrianF for the pointer]. Are these lost revenues good indications of the losses to the various levels of gubmnt?

What are people spending their money on if they are not attending hockey games? Are they going to movies? Are they attending college or minor league hockey (or WWF)? Are they buying more video games, flowers, or CDs of Vivaldi’s Four Seasons? Whatever they are doing (unless they are squirreling the cash away), they are diverting their spending to other sectors of the economy. Is none of this diverted spending finding its way back into the city’s coffers?

As an example, consider the situation in Detroit:

Detroit expects it would lose $8 million to $9 million should the league cancel its season, even if it were to book make- up events at Joe Louis Arena, says Albert Fields, the city’s deputy chief operating officer.

I will hazard a guess that they have no idea how much their revenues from other sources might have increased because hockey fans changed their behaviour and spent their money on something else in the city. Also,

Ronald Ruffin, 57, director of the parking department, says that without hockey, the city would probably have to increase parking fees citywide, boost fine-collection efforts and tap the general fund.

The implication in this quote is that the city charges a satisficing fee for parking and that the city engages in satisficing levels of fine-collection efforts. Cities do not usually have profit-maximizing objective functions, and so it is probably not appropriate for them to be charging the profit-maximizing fees for parking. But if they had some other goal(s) in mind when they set the parking fees, why would the hockey lockout have an impact on the pursuit of those goals? It seems unusual for the city to have a lexicographic ordering of its objectives with a revenue threshhold as its primary objective.

Furthermore, the idea that a city would step up fine-collection efforts because of the hockey lockout puzzles me. Perhaps I have studied too much Gary Becker-type economic analysis of law, crime, and punishment; perhaps I have read too many articles on the optimal rate of enforcement of laws; but it seems reasonable to me that if there is some goal in setting the level of fine-collection efforts, this goal hasn’t changed just because of the hockey lockout; usually the optimal rate of detection and punishment is related to goals of optimal deterrence.

The only reason to change the city’s efforts at fine-collecting would be that they had a revenue target or threshhold, which is not consistent with the standard approach to the optimal amount of law enforcement (though maybe it does enter into the objective functions of politicians and bureaucrats making the decisions!)

But what really caused me consternation when I read this article was the following:

Idle players will pay less in income taxes, costing the U.S. Treasury about $354 million and states about $57 million, says Norman Cherrey, an accountant for several players.

Yes, the hockey players will pay much less in income taxes. But the people who receive the proceeds of the diverted spending will pay more in income taxes. The effects will not cancel each other out completely, but they will offset each other to a considerable extent: Assuming hockey players on average have a higher marginal rate of taxation than those who receive the diverted spending, the net effect will be that the US and state gubmnts will lose some tax revenues, but nowhere near $411m.

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Author: John Palmer

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