When I write about Estonia, I generally have something nice to say.
- Estonia has a non-discriminatory flat tax.
Estonian lawmakers know how to cut spending.- Estonia has a very good corporate tax system.
- Estonia has a high level of economic freedom.
- Estonia shrank governmental power to reduce corruption.
Today, I want to add to my praise for this Baltic nation.
Unlike politicians in many other nations, lawmakers in Estonia responded wisely when they saw a tax increase was backfiring.
As Estonia tries to recover its alcohol customers lost to neighbouring Latvia due to high excise duty, the parliament in Tallinn has passed a 25% cut in excise duty rate. Estonian public broadcaster ERR reports that the bill was passed on Thursday,
June 13, in the Riigikogu by landslide. In the final reading, the bill was passed by 70-9 MP in favour backing the cutting of the alcohol excise duty rates for beer, cider and hard liquor by 25% beginning July 1. The amendments to the Estonian Alcohol, Tobacco, Fuel and Electricity Excise Duty Law…are aimed at reducing cross-border trade of Estonians buying their drinks much cheaper in northern Latvia.
Of course, it’s worth pointing out that Estonian politicians shouldn’t have increased excise taxes on booze in the first place.
And they may have fixed the problem because they got on the wrong side of the Laffer Curve (i.e., tax revenue was falling), not because of a philosophical preference for lower tax rates.
But rectifying a mistake is definitely better than doubling down on a mistake, which is how politicians in many other nations probably would have reacted.
This approach, combined with the good policies listed above, helps to explain why Estonia is one of the few economic success stories to emerge from the collapse of the Soviet Empire.
Though, in closing, I’ll note that the country needs additional pro-market reform to deal with the challenge of demographic decline.
P.S. Read what Estonia’s Minister of Justice wrote about totalitarian socialism.
P.P.S. Also read about how Paul Krugman earned an “exploding cigar” with some sloppy analysis about Estonia.
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Image credit: NakNakNak | Pixabay License.
