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Posts Tagged ‘World Bank’

The World Bank has released its annual report on the Ease of Doing Business.

Unsurprisingly, the top spots are dominated by market-oriented jurisdictions, with New Zealand, Singapore, and Hong Kong (at least for now!) winning the gold, silver, and bronze. The United States does reasonably well, finishing in sixth place.

It’s also worth noting that Nordic nations do quite well. Denmark even beats the United States, and Norway and Sweden are both in the top 10.

Georgia gets a very good score, as does Taiwan. And I’m sure Pope Francis will be irked to see that Mauritius ranks highly.

I’m surprised, though, to see Russia at #28 and China at #31. That’s better than France!

And I’m even more surprised that normally laissez-faire Switzerland is down at #36.

What economic lessons can we learn from the report? First, the authors remind us that less red tape means more prosperity.

Research demonstrates a causal relationship between economic freedom and gross domestic product (GDP) growth, where freedom regarding wages and prices, property rights, and licensing requirements leads to economic development. … The ease of doing business score serves as the basis for ranking economies on their business environment: the ranking is obtained by sorting the economies by their scores. The ease of doing business score shows an economy’s absolute position relative to the best regulatory performance, whereas the ease of doing business ranking is an indication of an economy’s position relative to that of other economies.

By the way, here’s a simple depiction of the World Bank’s methodology.

It’s also worth noting that less intervention means less corruption.

There are ample opportunities for corruption in economies where excessive red tape and extensive interactions between private sector actors and regulatory agencies are necessary to get things done. The 20 worst-scoring economies on Transparency International’s Corruption Perceptions Index average 8 procedures to start a business and 15 to obtain a building permit. Conversely, the 20 best-performing economies complete the same formalities with 4 and 11 steps, respectively. Moreover, economies that have adopted electronic means of compliance with regulatory requirements—such as obtaining licenses and paying taxes—experience a lower incidence of bribery.

Poor countries, not surprisingly, have more red tape.

An entrepreneur in a low-income economy typically spends around 50 percent of the country’s per-capita income to launch a company, compared with just 4.2 percent for an entrepreneur in a high-income economy. It takes nearly six times as long on average to start a business in the economies ranked in the bottom 50 as in the top 20. There’s ample room for developing economies to catch up with developed countries on most of the Doing Business indicators. Performance in the area of legal rights, for example, remains weakest among low- and middle-income economies.

Africa and Latin America are especially bad.

Sub-Saharan Africa remains one of the weak-performing regions on the ease of doing business with an average score of 51.8, well below the OECD high-income economy average of 78.4 and the global average of 63.0. …Latin America and the Caribbean also lags in terms of reform implementation and impact. …not a single economy in Latin America and the Caribbean ranks among the top 50 on the ease of doing business.

I’m disappointed, by the way, that Chile is only ranked #59.

Now let’s shift to some very important graphs about the relationship between economic freedom and national prosperity.

We’ll start with a look at the relationship between employment regulation and per-capita income. Not surprisingly, countries that make it hard to hire workers and fire workers have lower levels of prosperity.

Here’s a chart showing the relationship between employment regulation and the underground economy.

The moral of the story is that lots of red tape drives employers and employees to the black market.

Perhaps most important, there’s a very clear link between good regulatory policy and overall entrepreneurship.

Here’s a bit of good news.

Developing nations have reduced the burden of red tape in some areas, in part because Ease of Doing Business puts pressure on governments.

We can see the results in this chart.

I’ll close with a look at the regulatory burden in the United States, which also can be considered good news.

Here’s the annual score for the past five years (a higher number is better).

I’m frequently critical of this White House, but I also believe in giving credit when it’s deserved. The bottom line is that Trump’s policies have been a net plus for businesses.

In other words, lower tax rates and less red tape have more than offset the pain of protectionism.

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The great French economist from the 1800s, Frederic Bastiat, famously explained that good economists are aware that government policies have indirect effects (the “unseen”).

Bad economists, by contrast, only consider direct effects (the “seen”).

Let’s look at the debate over stadium subsidies. Tim Carney of the American Enterprise Institute narrates a video showing how the “unseen” costs of government favoritism are greater than the “seen” benefits.

Unfortunately, stadium subsidies are just the tip of the cronyism iceberg.

In a column for the Dallas Morning News, Dean Stansel of Southern Methodist University discussed some of his research on the topic.

While state and local economic development incentives may seem to help the local economy, the offsetting costs are usually ignored, so the overall effect is unclear. Furthermore, from the perspective of the nation as a whole, these policies are clearly a net loss. …In a new research paper, my colleague, Meg Tuszynski, and I examined whether there is any relationship between economic development incentive programs and five measures of entrepreneurial activity. Like the previous literature in this area, we found virtually no evidence of a positive relationship. In fact, we found a negative relationship with patent activity, a key measure of new innovation. …A recent study by the Mercatus Center found that 12 states could reduce their corporate income tax by more than 20 percent if incentive programs were eliminated. That includes a 24 percent cut in Texas’ business franchise tax. In six states, it could either be completely eliminated or reduced by more than 90 percent. These are big savings that would provide substantial tax relief to all businesses, both big and small, not just those with political influence. …That would provide a more level playing field in which all businesses can thrive.

And here’s a Wall Street Journal editorial from earlier the year.

Amazon left New York at the altar, turning down a dowry of $3 billion in subsidies. Foxconn’s promised new factory in Wisconsin, enticed with $4 billion in incentives, has fallen into doubt. …Now add General Electric , which announced…it will renege on its plan to build a glassy, 12-story headquarters on Boston’s waterfront. …The company reportedly…pledged to bring 800 jobs to Boston. In exchange, the city and state offered $145 million in incentives, including tax breaks and infrastructure funds. GE’s boss at the time, Jeff Immelt, said not to worry: For every public dollar spent, “you will get back one thousand fold, take my word for it.” …two CEOs later, a beleaguered GE won’t be building that fancy tower at all. There won’t even be 800 jobs. …GE will lease back enough space in two existing brick buildings for 250 employees. …what a failure of corporate welfare.

Let’s wrap this up with a look at some additional scholarly research.

Economists for the World Bank investigated government favoritism in Egypt and found that cronyism rewards politically connected companies at the expense of the overall economy.

This paper presents new evidence that cronyism reduces long-term economic growth by discouraging firms’ innovation activities. …The analysis finds that the probability that firms invest in products new to the firm increases from under 1 percent for politically connected firms to over 7 percent for unconnected firms. The results are robust across different innovation measures. Despite innovating less, politically connected firms are more capital intensive, as they face lower marginal cost of capital due to the generous policy privileges they receive, including exclusive access to input subsidies, public procurement contracts, favorable exchange rates, and financing from politically connected banks. …The findings suggest that connected firms out-rival their competitors by lobbying for privileges instead of innovating. In the aggregate, these policy privileges reduce…long-term growth potential by diverting resources away from innovation to the inefficient capital accumulation of a few large, connected firms.

For economics wonks, here’s Table 2 from the study, showing how subsidies are associated with less innovation.

The World Bank also found awful results because of cronyism in Ukraine.

But this isn’t a problem only in developing nations.

There’s some depressing research about the growing prevalence of cronyism in the United States (ethanol handouts, the Export-Import Bankprotectionismtax favoritismbailoutssubsidies, and green energy are just a few examples of how the friends of politicians get unearned wealth).

Cronyism is bad under Democrats and it’s bad under Republicans. Time for separation of business and state!

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When I wrote last month about the Green New Deal, I warned that it was cronyism on steroids.

Simply stated, the proposal gives politicians massive new powers to intervene and this would be a recipe for staggering levels of Solyndra-style corruption.

Well, the World Bank has some new scholarly research that echoes my concerns. Two economists investigated the relationship with the regulatory burden and corruption.

Empirical studies such as Meon and Sekkat (2005) and De Rosa et al. (2010) show that corruption is more damaging for economic performance at higher levels of regulation or lower levels of governance quality. …Building on the above literature, in this paper, we use firm-level survey data on 39,732 firms in 111 countries collected by the World Bank’s Enterprise Surveys between 2009 and 2017 to test the hypothesis that corruption impedes firm productivity more at higher levels of regulation. …estimate the model using sample weighted OLS (Ordinary Least Squares) regression analysis.

And what did they discover?

We find that the negative relationship between corruption and productivity is amplified at high levels of regulation. In fact, at low levels of regulation, the relationship between corruption and productivity is insignificant. …we find that a 1 percent increase in bribes that firms pay to get things done, expressed as the share of annual sales, is significantly associated with about a 0.9 percent decrease in productivity of firms at the 75th percentile value of regulation (high regulation). In contrast, at the 25th percentile value of regulation (low regulation), the corresponding change is very small and statistically insignificant, though it is still negative. …after we control for investment, skills and raw materials, the coefficients of the interaction term between corruption and regulation became much larger… This provides support for the hypothesis that corruption is more damaging for productivity at higher levels of regulation.

Lord Acton famously wrote that “power corrupts, and absolute power corrupts absolutely.”

Based on the results from the World Bank study, we can say “regulation corrupts, and added regulation corrupts additionally.”

Not very poetic, but definitely accurate.

Figure 4 from the study shows this relationship.

Seems like we need separation of business and state, not just separation of church and state.

This gives me a good excuse to recycle this video I narrated more than 10 years ago.

P.S. Five years ago, I cited a World Bank study showing that tax complexity facilitates corruption. Which means a simple and fair flat tax isn’t merely a way of achieving more prosperity, it’s also a way of draining the swamp.

The moral of the story – whether we’re looking at red tape, taxes, spending, trade, or any other issue – is that smaller government is the most effective way of reducing sleaze and corruption.

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A couple of weeks ago, I used a story about a local tax issue in Washington, DC, to make an important point about how new tax increases cause more damage than previous tax increases because “deadweight losses” increase geometrically rather than arithmetically.

Simply stated, if a tax of X does Y amount of damage, then a tax of 2X will do a lot more damage than 2Y.

This is the core economic reason why even left-leaning international bureaucracies agree that class-warfare taxes are so destructive. When you take a high tax rate and make it even higher, the damage grows exponentially.

As such, I was very interested to see a new study on this topic from the World Bank. It starts by noting that higher tax rates are the wrong way to address fiscal shortfalls.

…studies have used the narrative approach for individual or multi-country analyses (in all cases, focusing solely on industrial economies, and mostly on industrial European countries). These studies find large negative tax multipliers, ranging between 2 and 5. This recent consensus pointing to large negative tax multipliers, especially in industrial European countries, naturally entails important policy prescriptions. For example, as part of a more comprehensive series of papers focusing on spending and tax multipliers, Alesina, Favero, and Giavazzi (2015) point that policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments.

The four authors used data on value-added taxes to investigate whether higher tax rates did more damage or less damage in developing nations.

A natural question is whether large negative tax multipliers are a robust empirical regularity… In order to answer this highly relevant academic and policy question, one would ideally need to conduct a study using a more global sample including industrial and, particularly, developing countries. …This paper takes on this challenge by focusing on 51 countries (21 industrial and 30 developing) for the period 1970-2014. …we focus our efforts on building a new series for quarterly standard value-added tax rates (henceforth VAT rates). …We identify a total of 96 VAT rate changes in 35 countries (18 industrial and 17 developing).

The economists found that VAT increases did the most damage in developing nations.

…when splitting the sample into industrial European economies and the rest of countries, we find tax multipliers of 3:6 and 1:2, respectively. While the tax multiplier in industrial European economies is quite negative and statistically significant (in line with recent studies), it is about 3 times smaller (in absolute value) and borderline statistically significant for the rest of countries.

Here’s a chart showing the comparison.

Now here’s the part that merits close attention.

The study confirms that the deadweight loss of VAT hikes is higher in developed nations because the initial tax burden is higher.

Based on different types of macroeconomic models (which in turn rely on different mechanisms), the output effect of tax changes is expected to be small at low initial levels of taxation but exponentially larger when initial tax levels are high. Therefore, the distortions and disincentives imposed by taxation on economic activity are directly, and non-linearly, related to the level of tax rates. By the same token, for a given level of initial tax rates, larger tax rate changes have larger tax multipliers. …In line with theoretical distortionary and disincentive-based arguments, we find, using our novel worldwide narrative, that the effect of tax changes on output is indeed highly non-linear. Our empirical findings show that the tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. …This evidence strongly supports distortionary and disincentive-based arguments regarding a nonlinear effect of tax rate changes on economic activity…the economy will inevitably suffer when taxes are increased at higher initial tax rate levels.

What makes these finding especially powerful is that value-added taxes are less destructive than income taxes on a per-dollar-raised basis.

So if taking a high VAT rate and making it even higher causes a disproportionate amount of economic damage, then imagine how destructive it is to increase top income tax rates.

P.S. The fact that a VAT is less destructive than an income tax is definitely not an argument for enacting a VAT. That would be akin to arguing that it would be fun to break your wrist because that wouldn’t hurt as much as the broken leg you already have.

I’ve even dealt with people who actually argue that a VAT isn’t economically destructive because it imposes the same tax on current consumption and future consumption. I agree with them that it is a good idea to avoid double taxation of saving and investment, but that doesn’t change the fact that a VAT increases the wedge between pre-tax income and post-tax consumption.

And that means less incentive to earn income in the first place.

Which is confirmed by the study.

Panels A and B in Figure 18 show the relationship between the VAT rate a and the perceived effect of taxes on incentives to work and invest, respectively, for a sample of 123 countries for the year 2014. Supporting our previous findings, the relationship is highly non-linear. While the perceived effect of taxes on the incentives to work and invest barely changes as VAT rates increase at low/moderate levels (approximately until the VAT rate reaches 14 percent), it falls rapidly for high levels of VAT rates.

Here’s the relevant chart from the report.

The moral of the story is that all tax increases are misguided, but class-warfare taxes wreak the most economic havoc.

P.S. Not everyone understands this common-sense observation. For instance, the bureaucrats at the Congressional Budget Office basically argued back in 2010 that a 100 percent tax rate was the way to maximize growth.

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There was a book last decade by Thomas Frank, What’s the Matter with Kansas?, that asked why lower-income voters in the state didn’t vote for greater levels of redistribution.

The author claimed these voters were sidetracked by cultural issues, which may very well be part of the story. I like to think that these Kansans also were motivated by ethics and that they realized it would be wrong to use government coercion to take money from other people.

And maybe, unlike the folks at the IMF, they were not motivated by envy and they realized that high taxes and more redistribution would make them worse off over time because of the negative impact on overall prosperity.

Well, it appears that the folks in Kansas aren’t that different from people in India, Morocco, Nigeria, Mexico, and South Africa. At least that’s the takeaway from some new research that Christopher Hoy wrote about for the World Bank. Here’s the issue he investigated.

Social commentators and researchers struggle to explain why, despite growing inequality in many countries around the world,  there is often relatively limited support among poorer people for policies where they are set to benefit (such as increases in cash transfers or in the minimum wage). …Conventional theories of preferences for redistribution, such as the Meltzer-Richard Hypothesis, imply that if poor people were made aware they were relatively poorer than most other people in their country, they would become more supportive of redistribution. Yet there is little empirical evidence that evaluates this prediction. …empirical evidence is needed to understand how poorer people’s misperceptions of their relative position in the national income distribution effects their support for redistribution.

Here’s the methodology he used.

I conducted the first cross country survey experiment on preferences for redistribution in the developing world… The experiment involved over 16,000 respondents in five developing countries that make up almost 25% of the global population (India, Nigeria, Mexico, South Africa and Morocco). …To test whether informing poor people of their relative position in the national income distribution makes them more supportive of redistribution, I randomly allocate half of the respondents in each country to be told which quintile their household belongs to in the national income distribution (based upon their reported household income and the number of household members). …After the treatment they were asked if they thought the gap between the rich and poor was too large and whether the government was responsible for closing this gap.

And here are some of the results.

People tend to think they are in the middle of the income distribution, regardless of whether they are rich or poor. …poor people who perceived themselves to be in the bottom two quintiles of the distribution were between 15 to 28 percentage points more likely to prefer lower levels of inequality than poor people who perceived themselves to be in the top two quintiles. …Surprisingly, telling poor people that they are poorer than they thought makes them less concerned about the gap between the rich and poor in their country…there was no effect from the treatment on these people’s support for the government to close the gap between the rich and poor.

Here’s a chart showing how people became less sympathetic to government-coerced redistribution after learning more about their own economic status.

The author speculates on possible reasons for these results.

A plausible channel that is causing this effect is people using their own living standard as a ‘benchmark’ for what they consider acceptable for others. …people…realise two points. Firstly, there are fewer people in their country with a living standard they considered to be relatively poor than they had thought. Secondly, what they had considered to be an ‘average’ living standard (their own standard of living) is actually relatively poor compared to other people in their country. I show how both of these points would lead people to respond by being less likely to be concerned about the gap between the rich and poor in their country. …there are opposing channels through which poorer people’s preferences for redistribution respond to information about their relative position. On the one hand, poorer people may be more supportive if they are set to benefit from redistribution. However, on the other hand they may be less supportive if they are less concerned about the absolute living standard of people who are relatively poor.

These are all plausible answers.

Though I have the same questions about this research as I did about Frank’s book. Do people in these five developing nations have any level of moral aversion to redistribution and/or do they understand (at least implicitly) that a tax-and-redistribute model is a recipe for national economic decline?

Perhaps a more practical way of looking at the issue is to ask whether lower-income people care most about economic growth or economic inequality.

Many of the professional left, including the ideologues at the IMF, are fixated on the latter and they’re willing to hurt the poor if the rich suffer even greater harm (in other words, Margaret Thatcher was right about their motives).

By contrast, I strongly suspect the average lower-income person is far more interested in more prosperity for their family and far less concerned about the prosperity of the rich family on the other side of town. They presumably are unaware of the powerful Chinese data on poverty reduction and inequality, but they instinctively understand that a rising tide lifts all boats.

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I don’t like writing about deficits and debt because I don’t want to deflect attention from the more important underlying problem of excessive government spending.

Indeed, I constantly explain that spending is what diverts resources from the productive sector of the economy, regardless of whether outlays are financed by taxes or borrowing. This is why a spending cap is far and away the best rule for fiscal policy.

That being said, red ink does matter when politicians incur so much debt that investors (i.e., the folks in the private sector who buy government debt) decide that a government no longer is trustworthy. And when that happens, interest rates climb because investors insist on getting a higher return to compensate for the risk of default.

And if things really deteriorate, a government may default (i.e., no longer make promised payments) and investors obviously will refuse to lend any more money. That’s basically what happened in Greece.

Sadly, most governments have not learned from Greece’s mistakes. Indeed, government debt in Europe is now significantly higher than it was before the 2008 recession.

This suggests that there will be another fiscal crisis when the next recession occurs. Italy presumably will be the big domino to fall, though there are many other nations in Europe that could get in trouble.

But the problems of excessive spending and excessive debt are not limited to Europe. Or Japan.

The World Bank has a new report that shows that red ink is a growing problem in the rest of the world. More specifically, the report is about “fiscal space,” which some see as a measure of budgetary flexibility but I interpret as an indicator of budgetary vulnerability. Here’s how it is defined in the report.

…fiscal space is simply defined as the availability of budgetary resources to conduct effective fiscal policy. …some studies define it as the budgetary room to create and allocate funding for a certain purpose without threatening a sovereign’s financial position. …Debt service capacity is a critical component of fiscal space. It has multiple dimensions, including financing needs that are related to budget positions and debt rollover, access to liquid markets, resilience to changes in market valuations of debt, and the coverage of contingent liabilities. …Market participants’ perceptions of sovereign risk reflect and, in turn, influence an economy’s ability to tap markets and service its obligations. Thus, fiscal space can function as an essential instrument of macroeconomic risk management.

And what is “effective fiscal policy”?

From the World Bank’s misguided perspective, it’s the ability to engage in Keynesian spending.

Countries with ample fiscal space can use stimulus measures more extensively.

But let’s set aside that anti-empirical assertion.

I found the report useful (though depressing) because it had data showing how debt levels have increased, especially in emerging market and developing economies (EMDEs).

Fiscal space improved during 2000−07, but has shrunk around the world since the global financial crisis. …debt sustainability indicators, including government debt and fiscal sustainability gaps, have deteriorated in at least three-quarters of countries in the world. …and perceptions of market participants on sovereign credit risks have worsened. …Since 2011, fiscal space has shrunk in EMDEs. …fiscal deficits widened to 3 to 5 percent of GDP in 2016, on average… Government debt has risen to 54 percent of GDP, on average, in 2017. …EMDEs need to shore up fiscal positions to prevent sudden spikes in financing costs… Fiscal space has been shrinking in EMDEs since the global financial crisis. It needs to be strengthened.

Here is a set of charts from the report, showing both developed nations (red lines) and developing nations (yellow lines). The top-left chart shows debt climbing for EMDEs and the bottom-right chart shows debt ratings dropping for EMDEs.

The EMDEs have lower debt levels, but their debt is rated as more risky because poorer nations don’t have a very good track record of dealing with recessions and fiscal crises (would you lend money to Argentina?).

In any event, the yellow lines in the top-left chart and bottom-right chart are both headed in the wrong directions.

The bottom line? It won’t just be European welfare states that get in trouble when there’s another recession.

By the way, the report from the World Bank offers some policy advice. Some of it potentially good.

Pension reforms could…support fiscal credibility and generate long-term fiscal gains… credible and well-designed institutional mechanisms can help support fiscal discipline and strengthen fiscal space. …Fiscal rules impose numerical constraints on budgetary aggregates—debt, overall balance, expenditures.

But most of it bad.

Fiscal sustainability could be improved by increasing the efficiency of revenue collection… Measures to strengthen revenue collection could include broadening tax bases to remove loopholes for higher-income households or profitable corporates. In countries with high levels of informality, taxing the informal sector—for example, by promoting a change in payment methods to non-cash transaction and facilitating collective action by informal sector associations—could help raise revenues directly, as well as indirectly… In EMDEs, reforms to broaden revenue bases and strengthen tax administration can generate revenue gains.

At the risk of stating the obvious, the problem in developing nations is bad government policy, not insufficient revenue in the hands of politicians.

P.S. I included the caveat that some of the recommendations were “potentially good” since the report didn’t specify the type of pension reform or the type of fiscal rule. I like to think the authors were referring to personal retirement accounts and spending caps, but it’s not clear.

P.P.S. The IMF subsidizes and encourages bad fiscal policy with bailouts. Fortunately, there is a much more sensible approach.

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When asked to pick the worst international bureaucracy, I generally respond as follows.

The International Monetary Fund (IMF) or Organization for Economic Cooperation and Development (OECD) should be at the top of the list. Both of those bureaucracies aggressively push statist policies designed to give governments more power over people. I have mixed feelings about which one deserves to be called the worst bureaucracy.

Next on my list are the United Nations (UN) and European Bank for Reconstruction and Development (EBRD). Many people are surprised the UN isn’t higher on the list, but I point out that the organization generally is very ineffective. Meanwhile, the EBRD is relatively unknown, but I have total disdain for its cronyist business model (basically a global version of the Export-Import Bank).

At the bottom of my list is the World Bank (WB). I don’t have knee-jerk hostility to the WB, in part because the bureaucrats historically have their hearts in the right place (reducing poverty) and even occasionally support the right policies (social security reform and regulatory relief).

Nonetheless, I was disappointed earlier this year to learn that the Trump Administration decided to give more money to the World Bank.

The Trump administration is backing a $13 billion increase in funding for the World Bank… The change…will allow the bank to increase lending to poor-country clients… The U.S. is the only country with veto power over any changes in bank structure, so funding increases cannot proceed without Washington’s support. …The shift to U.S. support for more funding at the Bank took some European governments by surprise, said Suma Chakrabarti, president of the European Bank for Reconstruction and Development, a London-based multilateral bank lending in Europe, the Middle East and North Africa. He said in an interview Thursday that the capital increase is “very good news,” since it would help efforts to reduce global poverty. …Mr. Mnuchin said he would work with Congress to secure approval for the U.S. contribution, a step that has in the past proved challenging.

Hopefully it will prove impossible rather than challenging to get approval for more funding (though I haven’t been following the issue, so maybe Republicans in Congress already have okayed an expansion).

Assuming the decision hasn’t yet been made, I have some evidence showing why the World Bank doesn’t deserve more funding.

And not merely because aid is not the route to prosperity. Consider the misguided advice that the World Bank is pushing on Romania.

The Romanian government should…consider switching the flat income tax to a progressive tax, said World Bank chief economist for Europe and Central Asia, Hans Timmer. …The World Bank representative…referred to the flat tax rate…, stating that they should think about whether this system is still appropriate. The World Bank’s advice would be to rethink the entire labor market taxation system in coordination with other countries in the region, and not just make small changes. ”We can not tell you what the solution is, but you need to analyze everything, including the single tax, and whether you’d be better off implementing a progressive tax system, meaning those who earn more pay more,” Timmer said.

This is horrible advice. The flat tax is very conducive to prosperity and Romania needs fast growth to help offset the damage caused by decades of communist enslavement.

Moreover, there are problems with corruption in Romania and the World Bank has admitted that tax complexity facilitates corruption.

Given Mr. Timmer’s misguided musings, I may need to get a new version of my cartoon about international bureaucracies. Especially since the World Bank once produced a study giving nations higher grades for having more oppressive tax systems.

P.S. In fairness, the WB has produced some good work on government spending, dependency, financial regulation, and free markets.

P.P.S. And I especially like the World Bank’s comparison of Chile and Venezuela.

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