Friday, May 25, 2007

Taxes, Revenues, Globlization and Prosperity

Excerpts below from today's WSJ, an editorial about the OECD's study "Making the Most of Globalization," released yesterday.

Over the past decade, most OECD countries cut corporate taxes, some by a great chunk, and saw average state revenues go up -- not just in absolute terms. As the chart above shows, corporate-tax proceeds have also risen as a percentage of GDP.

By scrapping tax exemptions and lowering headline rates, governments have attracted investment, boosted growth and corporate profits, and improved tax compliance. It's a nice demonstration of the Laffer curve at work.

The study also disproves the mercantilist claim that world trade is a zero-sum game. Living standards rise when trade barriers fall. The OECD found that a 10 percentage-point increase in trade exposure -- the rise in exports and imports as a share of GDP -- has led to a 4% rise in income per capita.

Also contrary to protectionist arguments, trade openness doesn't hurt overall employment. Offshoring may reduce the workforce of individual firms in their home country. But for the national economy, the improved competitive position and higher productivity lead to greater demand for labor. As a result, structural unemployment in the EU fell one percentage point over the past decade even though Europe has made little progress in easing labor market rules, the OECD says.

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