The Globe and Mail, Monday, December 11, 2000
Lower taxes no guarantee of faster growth
By Bruce Little
It is almost an article of faith in some quarters that the surest route to=
faster economic growth lies on a path strewn with lower taxes. Sometimes, =
however, articles of faith don't quite match the evidence supplied by the r=
eal world.
Andrew Jackson, director of research at the Canadian Council on Social
Deve=
lopment, thinks this is one of those times. He has pulled together some imp=
ressive support -- much of it from the Organization for Economic Co-operati=
on and Development -- for his view.
Mr. Jackson's thoughts on this issue warrant a wider audience simply
becaus=
e they go to the heart of Canada's debate over what to do with growing gove=
rnment surpluses. Should they be converted into tax cuts or new spending
or=
used to pay down debt?
The newly elected Liberals have promised some of all three, but several pro=
vinces have leaned heavily in the direction of tax cuts, with plans to go e=
ven further.
Ontario Premier Mike Harris and Alberta Premier Ralph Klein regularly cite =
low tax rates as a key reason for their provinces' strong economies. This i=
s not just political posturing. There is plenty of support in economic theo=
ry for this view and plenty of economists who will defend it.
The companion to this notion is that we have to sacrifice the goal of incom=
e equality if we want a high-performance economy. Governments with less
tax=
revenue cannot afford generous social programs, so less money is
transferr=
ed from the well-off to the poor.
"The idea that society faces a fundamental tradeoff . . . between social ju=
stice and economic growth is a staple of both economics textbooks and
conte=
mporary political debate," Mr. Jackson says in his study, which is availabl=
e at http://www.ccsd.ca/pubs/2000/equity.
The United States is usually portrayed at one end of the spectrum -- fast g=
rowth combined with extreme inequality in the distribution of income -- whi=
le European countries find themselves at the other end, with relatively equ=
al incomes, but slow growth.
What happens when you take this idea out for a road test? Some data from
th=
e OECD suggests that in the 1990s, it crashed. The OECD compared growth
rat=
es and tax burdens in 22 countries. The growth measure was the annual
incre=
ase in real gross domestic product per person between 1990 and 1998; taxes
=
were measured as a percentage of GDP in 1994.
If you plot these on a graph where growth rates run up the vertical axis an=
d the tax burden across the horizontal axis, you'd expect to find a pattern=
. High-growth low-tax countries would be in the top left corner and low-gro=
wth high-tax countries in the bottom right. But there is no pattern. Countr=
ies with similar growth rates had wildly different tax burdens; countries w=
ith similar tax burdens had wildly different growth rates.
Among the G7 countries alone, Japan, Canada, Germany, Italy and France all
=
saw per capita growth of about 1 per cent annually over that period. But th=
eir tax burdens ranged from Japan's 28 per cent of GDP up to France's 44
pe=
r cent, with Canada near the lower end at 35 per cent.
The United States, with a tax load of 28 per cent, recorded growth of 1.7 p=
er cent a year, but so did Britain, where the tax burden was closer to Cana=
da's 35 per cent. Ireland's taxes were slightly higher, at 36 per cent, but=
its growth rate was a staggering 5.5 per cent a year, the best of any of t=
he 22 countries in the study.
The highest tax country was Denmark, at 50 per cent, but its GDP per person=
grew by 2.3 per cent annually, better than the United States' rate.
When you repeat the exercise comparing economic growth and income
equality,=
the result is the same -- no pattern. Denmark's incomes, for example, were=
more evenly distributed than most countries, yet its growth rate was among=
the highest.
If nothing else, Mr. Jackson has demonstrated that there are no simple reci=
pes for strong economic growth. But then, in the real world, there rarely a=
re, despite what politicians would have us believe.
---------------------------------------------------------------------------=
-------
ONVIA.COM NEWS ALERT: Voted as Canada's Hottest Start-up - Check out
this =
month's
product specials!
http://ads1.theglobeandmail.com/servlet/AdletRedirect?redirect=3Dhttp://www
=
.onvia.ca/ca/ibm/sos/win&outfile=3Donvia_sos_email_gam.log
---------------------------------------------------------------------------=
-------
Copyright 2000 | The Globe and Mail
Visit the globeandmail.com Web Centre for your competitive edge.
News: http://www.globeandmail.com
Books: http://www.chaptersglobe.com
Careers: http://www.globecareers.com
Mutual Funds: http://www.globefund.com
Stocks: http://www.globeinvestor.com
ROB Magazine: http://www.robmagazine.com
Technology: http://www.globetechnology.com
ROBTv: http://www.robtv.com=20=20=20
Wheels: http://www.globemegawheels.com
Our Web Sites have information and reports from all of our Quality of Life
Projects!
http://www.utoronto.ca/qol http://www.utoronto.ca/seniors
*************************************************************
In the early hours I read in the paper of epoch-making projects
On the part of pope and sovereigns, bankers and oil barons.
With my other eye I watch
The pot with the water for my tea
The way it clouds and starts to bubble and clears again
And overflowing the pot quenches the fire.
-- Bertolt Brecht
**************************************************************
Dennis Raphael, Ph.D.
Associate Professor
Department of Public Health Sciences
Graduate Department of Community Health
University of Toronto
McMurrich Building, Room 308
Toronto, Ontario, CANADA M5S 1A8
voice: (416) 978-7567
fax: (416) 978-2087
e-mail: [log in to unmask]
|
