Which districts voted against the HST?

Stephen Gordon laments British Columbians’ failure to ratify the HST, which will reduce our standard of living in B.C. for many years.The case in favour of the HST was overwhelming and no expert opposed the HST in public. Which people voted against their own best interests?

The Globe and Mail’s Chris Hannay presents some graphs showing proportion voting for the HST against certain demographic characteristics at the electoral district level. Districts with higher incomes tended to vote to keep the HST:

and a similar pattern holds for education: unconditionally, districts with more educated people were more likely to vote to keep the HST. Hannay implies that these effects are really the same effect: more educated people also tend to earn more, so the education—vote correlation is just another way of seeing that higher income people voted in their class interest.

An alternate explanation draws on my post from a couple of days ago on education and beliefs that economists understand the effects of taxation on the economy: uneducated people tend to place low weight on expert analysis, certainly including economic analysis. The direct impact of the HST on prices was easy for everyone to observe—they’re printed on cash register receipts. But the indirect effects, the effects on changes in embedded prices, were hard to observe. The HST was not in place long enough to observe effects on investment and growth. One had to yield to expert opinion to draw the correct conclusion that the HST is good policy.

We can disentangle the effects of income and education with some simple regressions. The data that the Globe’s Hannay used are readily available, 2006 Census data from here, and HST vote data by district from Elections B.C. I also wanted to control for party in power, which I found listed here. I ran simple OLS regressions. Some results:

Specifications (1) and (2) confirm that the relationships between the proportion voting for the HST and income or education are substantively and statistically significant. Unconditionally, a 10% increase in median income is associated with 7.7% greater pro-HST votes (t=7.5), and a 10% increase in the proportion of people with no greater than high school education is associated with 3.4% (t=3.9) lower support for the HST (note these are percent changes, not percentage point changes).

Specification (3) controls for both education and income. The effect of income remains substantial and highly statistically significant, but the effect of education falls to less than a third of its unconditional level and loses statistical significance. However, column (4) adds dummies for NDP and Liberal MLAs (relative to independents), for Vancouver ridings, and for the proportion of the population who are immigrants. Holding these additional variables constant dramatically reduces the effect of income, which is quite highly correlated with votes in the 2009 election results, and the effect of education returns to roughly its unconditional magnitude and statistical significance. Other things equal, which party won the last election has little explanatory power; NDP-held ridings were 8% less likely to vote for the HST, but the effect is not statistically significant.

What can we conclude from these results? The idea that income drives everything has some superficial support: when we statistically hold income constant and look across districts with different education levels (as in column (3)) income and not education appears to be important, but once we consider more demographic characteristics (as in column (4)) income loses much of its predictive power. Both income and education appear to have independently influenced voting patterns. Finally, the proportion of immigrants appears to have had a large effect even after holding income and education constant, although it’s not at all obvious why, so perhaps other omitted variables explain that result.

An important caveat to keep in mind is that correlations between aggregate outcomes such as these tell us nothing at all about the underlying individual–level relationships. For example, we cannot conclude from these results that higher income or more educated people tended to vote for the HST—that may very well be true, but we cannot draw that conclusion from this sort of data. We can only conclude that regions in which there are a higher proportion of high income or relatively highly educated people were more likely to have a relatively high proportion of votes to keep the HST.

Replication files.
Should you wish to replicate or extend these results, you can download the data as a Stata .dta file and the .do file. You will need to change the extensions to .dta and to .do.

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2 Comments to “Which districts voted against the HST?”

  1. Alas, yet another commentary on how “people voted against their own best interests.”

    I think what all of these commentators fail to realize, this one included, is a fundamental assumption of economic theory: Agents make decisions to maximize their reasonable expectation of “long-term benefit”. Where both “long-term” and “benefit” have an odd correlation the further one looks into the future. (People smoke and buy lottery tickets for example.)

    In a democracy, where government is elected to make decisions, one of the risks is the government will fail to act in the electorates interests. Hence regular elections. To lie to the public and then defend it through “expert opinion” is a recipe for disaster. For at least a decade the public were told that the HST is good for manufacturing based Ontario but bad for service based BC. Then it was suddenly reversed and needed to be implemented immediately.

    The parable has been told numerous times, but in the Boy Who Cried Wolf the citizens acted “against their own best interest” because they did not believe the sheperd. The majority of BC voters do not believe the people they elected. Furthermore, in the absence of a credible government alternative what benefit is there in waiting for an election? (Even this is an example of not being able to trust the government – we have a fixed date election law, so how can there be an election looming on the horizon?)

    Yes, there is a financial price to pay in implementing then revoking the HST but what is the true cost? The “cost” of $1.6 Billion is our federal taxes transfered to the province and then transferred back to the feds again. The rest of the expenditures are staying within the BC economy. It might be wasted money but these days what government expenditure isn’t?

    The benefit is demonstrating to politiicans that they are not immune from public opinion – which maximizes the longer-term expectation that future political decisions will take my own best interest into account.

  2. Peter, thank you for your comment. Some counterpoint:

    Punishing the Liberals by substantially reducing our standard of living seems like a bad move. Liberal politicians themselves will not personally pay (more so than the rest of us, anyways) until the next election, and they could be punished at the next election equally well with the HST. Further, the referendum will probably prevent us and other provinces from switching to a VAT for many decades.

    Recall that in economic models assuming perfect rationality, choices are rational given subjective beliefs over the probabilities of various outcomes. To extend your example, a person who believes smoking is good for her health can still be rational in the jargon sense of the word, and make choices she believes to be in her long-term interests, and yet have incorrect and anti-scientific beliefs. In the case of the HST, the majority held such beliefs. It doesn’t follow that a policy is good because it is popular, and that would be so even if everyone were always rational in the jargon sense of the word.

    Note that the $1.6B transfer back to the Feds is a relatively small part of the costs. Uncertainty, other switching costs and, in the long run, the damage a poorly designed tax structure does to the economy are more substantial.

    There are very good reasons not one single expert opposed the HST in public.

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