These results won’t come as a surprise to anyone who has compared long-run growth rates in Hong Kong, the United States, France, and North Korea, but there’s a new study by three economists showing that nations with better tax policy grow faster and create more jobs. There are many other factors that also determine growth, as this video explains, but punishing investors and entrepreneurs with high tax rates is never a good idea. Here’s a passage from the study’s abstract, including a specific warning about the anti-growth impact of Obama’s plan for higher taxes in 2011.
Results indicate that lower tax rates are associated with more favorable economic activity, including growth in GDP, lower unemployment, and higher savings. These findings suggest that at the micro-level, corporate managers should consider tax rates when deciding to locate or not locate business operations within a given country, especially if the goal is to locate where the economy is dynamic. At the macro-level, before making changes to tax law, policy makers should carefully consider how tax rates affect economic activity. For example, policy makers in the US Congress, at the time of this writing, are considering whether to allow the Bush tax cuts to expire in 2010. If the Congress allows that to happen, the outcome would effectively be the largest tax increase in US history.
