8 thoughts on ““Harmful” tax competition: new actors, same old plot”

  1. Posted 03/08/2009 at 11:03 | Permalink

    In his Hobart Paper, ‘The Benefits of Tax Competition’, Richard Teather quotes from James Bartholomew and Angus Maddison in arriving at the following table showing GDP per capita, in constant 1990 $, for the highly-taxed United Kingdom and low-tax Hong Kong:

    1950 1973 1999

    UK 6,907 12,022 19,030

    Hong Kong 2,218 7,104 20,352

    Even if one’s objective were to maximise the government’s tax revenue, it seems it might make more sense, in the long run, to confiscate a small share of a fast-growing national income than a much higher share of a much more slowly-growing national income.

  2. Posted 03/08/2009 at 11:03 | Permalink

    In his Hobart Paper, ‘The Benefits of Tax Competition’, Richard Teather quotes from James Bartholomew and Angus Maddison in arriving at the following table showing GDP per capita, in constant 1990 $, for the highly-taxed United Kingdom and low-tax Hong Kong:

    1950 1973 1999

    UK 6,907 12,022 19,030

    Hong Kong 2,218 7,104 20,352

    Even if one’s objective were to maximise the government’s tax revenue, it seems it might make more sense, in the long run, to confiscate a small share of a fast-growing national income than a much higher share of a much more slowly-growing national income.

  3. Posted 03/08/2009 at 11:49 | Permalink

    Another good example is Ireland. Notwithstanding the recent difficulties of its financial sector, it has managed to overtake the UK in terms of GDP per head through a policy of relatively low taxes, particularly taxes on businesses. In the long run this policy has meant higher tax revenues and better public services than the high-tax, low-growth option.

  4. Posted 03/08/2009 at 11:49 | Permalink

    Another good example is Ireland. Notwithstanding the recent difficulties of its financial sector, it has managed to overtake the UK in terms of GDP per head through a policy of relatively low taxes, particularly taxes on businesses. In the long run this policy has meant higher tax revenues and better public services than the high-tax, low-growth option.

  5. Posted 03/08/2009 at 12:08 | Permalink

    I guess the time preference rate is the critical issue. A government with a ‘dynastic’ mindset would prefer the Hong Kong option, an ‘impatient’ government the high-tax one.
    It could also be that some governments value influence more than money per se. In this case, their relative share in the economy would be more important to them than the amount of money at their disposal.
    After all, the Swiss government is probably the least powerful one in the world, despite all the francs they have.

  6. Posted 03/08/2009 at 12:08 | Permalink

    I guess the time preference rate is the critical issue. A government with a ‘dynastic’ mindset would prefer the Hong Kong option, an ‘impatient’ government the high-tax one.
    It could also be that some governments value influence more than money per se. In this case, their relative share in the economy would be more important to them than the amount of money at their disposal.
    After all, the Swiss government is probably the least powerful one in the world, despite all the francs they have.

  7. Posted 03/08/2009 at 15:01 | Permalink

    ‘Government’ is not monolithic (is ‘polylithic’ the right description?). So politicians, craving re-election above all, might be short-termist, with a high interest rate, while civil servants might be long-termist, with a low interest rate. I’m not sure that politicians would always dominate.

  8. Posted 03/08/2009 at 15:01 | Permalink

    ‘Government’ is not monolithic (is ‘polylithic’ the right description?). So politicians, craving re-election above all, might be short-termist, with a high interest rate, while civil servants might be long-termist, with a low interest rate. I’m not sure that politicians would always dominate.

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