Taxation vs. economic growth

[c1ue]

A fine article examining the roots of the neoliberal economic view: that taxation somehow is directly linked to economic growth. That welfare is bad for the economy.

http://blogs.ft.com/martin-wolf-exch...#axzz1wSYkJB00

Please read the article at ft.com since they seem to really want it.

What is also interesting is how low Japan's taxation rate is as a function of GDP.

[jneal3]

Re: Taxation vs. economic growth

Interesting graphs, but I'm wondering if his conclusion that taxation levels are not predictive holds locally, i.e. if you took each individual country and perturbed its taxation level +/- a few percent, what is the effect on productivity growth? He says this:

What matters far more [than level of taxation] are culture, quality of institutions, including law, levels of education, quality of businesses, openness to trade, strength of competition, and so forth.

That's a long list of factors that could be confounding his plots and the ability to reveal the trend he is claiming. In what ways (positively/negatively) do they matter, and to what degree? Holding all those constant (i.e. performing this analysis on just a specific country) and then varying taxation level might be more revealing - I would think it would show which countries' culture, institutions, etc are really supportive of the countries' economic health (a more elastic response with respect to taxation level would mean that the culture, institutions, etc are more responsible for economic health, which would mostly be a good thing I think). Of course, performing this study would be really tough statistically.

Very thought provoking article.