Unfortunately, I won't be doing a lot of posting in the next few months due to work distractions (the curse of the blogging class!). However, I 'll try to keep coming up with the odd post and suppliment things with some old posts from last year.
On the good news front, maverick US economist George Borjas has started a new blog.
Meanwhile, here's a rant from 2006:
The overrated importance of taxes
On the liberal-right, as well as among some elements of the liberal-left, there seems to be an ideological obsession with tax rates and their importance in economic success.
However, in the real world there is no clear correlation between tax rates and the economic success of particular states.
Looking at the New Zealand blog scene, it is apparent there is a strong contingent of libertarians and neo-conservatives that harp on about the endless benefits of low taxes and economic deregulation. There is also a smaller group of centre-left liberals that argue that high taxes will turn New Zealand into a Scandinavian style success story.
When you look at the tax policies of particular countries though, you don’t find a lot of consistent evidence to support either case.
Economic libertarians cite the economic success of the U.S as compelling evidence that low taxes lead to economic prosperity. However, there are plenty of other countries with strong economies that have much higher tax rates, including Norway, Switzerland, Finland and Denmark. High tax Sweden struggled in the 1990s but is now doing relatively well with 4.1 percent growth last year.
As Steve Sailer points out, according to neo-liberal theory Sweden’s economy should now be in tatters and its work ethic shattered by socialism. Similarly, the third world is littered with low tax economies, such as Nigeria, that are still struggling with high levels of poverty and corruption.
Tax rates in most economically successful East Asian counties are relatively low, but these countries also tend to have high levels of trade protectionism that economic libertarians also strongly object to.
The centre-left cites the success of Scandinavian economies as evidence that high taxes can produce stable growth with high levels of equality. However, countries that have tried to copy Scandinavian tax policies have had little success- a good example being Britain in the 1970s. Britain was forced to revise its economies policies and reduce its tax rates after being ignominiously refused assistance by the IMF in the late 1970s.
In the period from 1945-1975 New Zealand did well under a post-war high tax regime, but was force to lower tax rates in the 1980s as national debt and inflation reached unsustainable levels.
Clearly its possible to run a successful economy under both high and low tax regimes, but there is little evidence to suggest that switching from one to the other will lead to a long-term improvement in a country’s economic performance. Furthermore, many developing countries have been perennial economic losers under both high and low tax systems.
Obviously, factors other than taxes, such as culture, ethnicity, resources, geography and history are more important in long -term economic success.
Nor can tax ideologues argue that tax rates would be decisive if only there was universal free trade. China is developing nicely with relatively high levels of protectionism (through farm subsidies and currency manipulation), while protectionist Japan and Korea are now emerging from extended recessions with their industrial sectors still in good shape.
Centre-left proponents of ‘fair trade’ also fail to acknowledge that developing countries won’t benefit from ‘fair trade’ if they lack the infrastructure needed for exporting and are unable to maintain basic law and order.
Tax fanatics should move on from their ideological cul de sac and start looking at other, more decisive factors in economic development.
Saturday, June 02, 2007
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