O Intermitente<br> (So long, farewell, auf weidersehen, good-bye)

O Intermitente
(So long, farewell, auf weidersehen, good-bye)

sexta-feira, maio 07, 2004

Lower Taxes, Bitte

Mary Tupy (do Cato Institute) escreve no WSJ sobre a pressão, que Alemanha está a exercer, sobre os novos países-membros da UE para aumentarem as suas taxas de imposto e sobre o mito das ajudas comunuitárias ajudarem as Economias mais pobres.

To start, Mr. Schroeder is right to point to low taxes among new EU members. Estonia has a zero percent corporate tax on reinvested or retained profits. Latvia and Lithuania have a corporate tax of 15%; Hungary, 16%; Poland and Slovakia, 19%. However, the chancellor fails to mention that most of the old EU members have long since realized that lower taxes lead to higher economic growth. For instance, between 1996 and 2003, Belgium cut its corporate tax rate to 34% from 40.2%; Denmark to 30% from 34%; Greece, to 35% from 40%. Iceland cut its corporate tax rate to 18% from 33%; Ireland to 12.5% from 40%; Italy to 38.3% from 53.2%; Luxembourg to 30.3% from 40.3%; and Portugal's rate dropped to 33% from 39.6%.

Mr. Schroeder is hypocritical in his criticism of lower rates because Germany has done the same, reducing its corporate tax rate from 57.4% in 1996 to 39.4% in 2003. So, the real concern of the chancellor does not seem to be lower taxes per se. Rather, Mr. Schroeder seems to object to the fact that some nations are able to lower their taxes more than others, leaving Germany and its expensive system of welfare entitlements behind.


Economic growth is, of course, the primary concern of the new members. According to the World Bank, the 2002 GNI per capita in Latvia, Lithuania and Slovakia was $3,480, $3,660 and $3,950 respectively. The 2002 GNI per capita in Germany, however, was $22,740. If the new members are to catch up with the West, in other words, they must be allowed to follow policies that generate faster economic growth. Luckily, it seems that their market-friendly policies have been paying off. Between 1998 and 2003, for example, average GDP growth in Estonia, Hungary, Latvia, Lithuania, and Slovakia was, 4.69%, 4.04%, 5.87%, 5.27% and 3.23% per year respectively. The German economy, on the other hand, grew at an average rate of 1.25% during the same period.


[A]id was supposed to generate faster economic growth in outlying regions of Europe. There are conceptual problems with that approach to economic growth. Governments are notoriously bad at tackling the essential problem of economics: efficient allocation of resources. Whereas the market decides allocation of resources according to risk-adjusted returns on investment, governments allocate resources on the basis of political lobbying.


As a practical matter, aid cannot be the determinant of economic growth in Europe. If that were true, Greece and Portugal, which received some of the largest amounts of aid, but pursued socialist economic policies, would be Europe's economic superpowers. Instead, they are among the poorest pre-enlargement members of the EU.


Thus, the proponents of aid look to Ireland as a supposed success story. But the lessons derived from the experiences of the Celtic Tiger are quite different. When Ireland joined the European Economic Community in 1973, it was one of Europe's poorest nations. By 2002, Ireland could boast a GNI per capita of $23,030 -- higher than Germany's $22,740 and France's $22,240. What happened?

The EU aid could not have been a major cause of Ireland's economic growth. As Benjamin Powell shows in a Cato Institute study, Ireland's economic growth rates increased at a time when European aid was declining as a percentage of the Irish GDP. What Ireland did to increase its growth was reduce its top marginal tax rate from 80% in 1975 to 44% in 2001, and cut the standard income tax from 35% in 1989 to 22% in 2001. The Irish cut their corporate tax rate from 40% in 1996 to 12.5% in 2003. All in all, Ireland's tax revenue in 1999 was 31% of the GDP. A comparable figure in the rest of the EU averaged 46%. As a result of those and other reforms, the Irish economy grew at an average annual rate of 7.65% between 1992 and 2001.

There is, in other words, enough evidence to suggest that market-friendly policies are better at generating rapid economic growth than financial aid. The new members should be encouraged, not threatened, when they adopt such policies. The old EU members should look at new members not as a threat, but as an example to be emulated.

posted by Miguel Noronha 5:42 da tarde

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"A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom."

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