Now, let's take a look at countries based on their taxation schemes.
This is the 2008 Tax Misery Index made by Forbes:
This index constructed by adding up each percentage point tax of various taxes: Corporate Income Tax, Personal Income Tax, Wealth Tax, Social Security Taxes and VAT/Sales Tax.
As we can see, there is big variety between areas of the world when it comes to taxation.
In the top of the chart we have high-taxed nations such as France, Belgium, Italy, Japan and Argentina. All these have had stagnant economic growth during the last decade. Develeloped economies have stopped their growth such as Japan and underdeveloped such as Argentina has even reduced their GDP/Capita.
On the bottom - low tax jurisdictions such as Hong Kong, United Arab Emirates, Qatar, Singapore, Russia and Eastern Europe - have been soaring. Their low tax regimes have encouraged foreign capital investment, increase in productivity and resulted in a higher standard of living.
There is evidently a link between taxation schemes and growth.
In the last eight years tax competition has made tax rates go down around the globe. I think that part of the increase in world growth has to be atributed to increased tax competition.
So if the evidence is so clear why do governments just cut taxes to increase growth? Well, the taxation scheme is designed on the spending requirements. If they are big spenders they need larger revenues. The problem is that government spends too much.
As Ronald Reagan once said about government interfearence in the economy: "Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other."
