I am in Vaduz, Liechtenstein, where I will be giving a speech shortly on tax competition issues, at a conference entitled, “Can Capitalism Survive.”
Regular readers already know my views on tax competition, so allow me to make a few observations instead about Liechtenstein.
It has a progressive income tax, which sounds bad, but the top tax rate is only 18 percent. The low rates, combined with a very simple system that generally does not penalize saving and investment, means that there is very little disincentive for people who want to make the economy more productive.
Government spending in Liechtenstein is far too high, consuming about 21 percent of GDP. But compared to the United States, where government outlays are approaching 40 percent of GDP (and Western Europe, where they someteimes exceed 50 percent of economic output), Liechtenstein is a small-government jurisdiction.
There are 36,000 people living in Liechtenstein and 32,000 jobs. Is this a sign of rampant child labor? No, there are 32,000 jobs because more than 15,000 foreigners come to Liechtenstein every day to work. Having low tax rates and small government is a good recipe for economic prosperity, and this is good news for workers in neighboring nations.
It goes without saying, of course, that the people and leaders of Liechtenstein correctly understand that financial privacy is a fundamental human right, one that respects the sanctity of the individual and recognizes the threat of government.
Last but not least, the seven villages that comprise Liechtenstein have an explicit right of secession. So if the Royal Family and/or Parliament ever get too greedy, all it takes to escape is a two-thirds vote.