InstaPatrick

Lower taxes, richer people

Obviously you can’t isolate all the factors (the usual caveats apply) but here are some examples where lower taxes appear to have led to higher growth:

US v UK over the 20th century
Hong Kong v UK since 1960
Japan v UK since 1945 (sure, it hasn’t looked so good since 1990 but the Japanese are paying a high hidden tax in the form of government deficits)
UK v France since 1980 (actually it goes back even further than that. The UK’s poor economic performance in the 1970s was due to high inflation and strikes)

But surely Japan’s growth was due to all that government intervention?

There has been intervention everywhere, including Japan but little in areas such as cars, motorbikes and consumer electronics ie precisely the areas where Japan has done well. See Phillip Oppenheim’s ‘’The New Masters’’ (if you can get hold of it)

But is higher growth really such a good thing if it leads to global warming or other forms of pollution?

Maybe yes, maybe no. The real question here is: how should negative externalities be dealt with?

But don’t lower taxes mean more inequality?

What’s wrong with inequality? If someone produces more why shouldn’t they be richer?
It seems to me that people focus far too much on ‘’income’’ inequality rather than what that income will actually buy. After all, is a £100,000 car really 10 times better than a £10,000 car? Not really. Usually, in some respects such as fuel economy and maintenance costs it is considerably worse.
In terms of what people actually end up it seems to me that in areas such as cars, food and holidays ie things provided in a freeish market we are fairly equal but in areas such as housing and education ie areas dominated by the state, we are not.

But what about Sweden? That has high taxes and prosperity.

My understanding is that high taxes in Sweden only began in the late 1960s. Since then growth has only been so-so. I also understand that other than taxes Swedish businesses have rather fewer regulations to contend with than in other countries

Permalink • Economics • Last Updated: 08 September 2006

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