Spud’s off on one again

He’s realised that developed countries tend to have a higher tax share of GDP than poor ones. And thus:

And, as is clear from the line of best fit that Charles has added, the trend is very obvious: as tax rates increase so does GDP. You could argue it’s the other way round but I would very strongly challenge that because government spending is part of GDP and whilst the link between government spending and tax is not direct, what is apparent is that the spending comes before the tax (as I have argued in The Joy of Tax, for example) and so it is GDP that drives the tax flows and not vice versa.

In which case when you have under employment, low productivity and low inflation why on earth would you want a low tax economy?

There’re a number of things he’s missing. Logically, even he’s not saying that higher tax does it. Rather, he’s saying that higher government spending does. It’s still true that tax is the cost of gaining that.

But of course there’s more. Perhaps richer people desire more public goods? Maybe more social insurance? Could be that tax is low in poor places because taxing the people will kill them through starvation? What if there’s some sort of Laffer Curve, or Kuznets maybe, here? Up to some level of GDP then more government – and thus spending and tax – does make the place richer and above that it doesn’t.

For example, the US and UK are richer than France or Finland. So, who is at the sweet spot?

Correlation, as we know, does not show causality…..

22 comments on “Spud’s off on one again

  1. I’ve told him I can draw a trend line on Excel that shows the more letters in a country name, the higher the GDP per capita. Then again I’m not a pretend professor without any higher degrees.

  2. I posted on his blog about the Rahn curve. And what the trend line predicts about acountry that increased tax take to 100% of GDP. Alas, they didn’t make it through his sycophancy filter.

  3. I have also noticed that developed economies have more people who talk nonsense. Therefore a large quantity of people talking nonsense are a prerequisite for a developed economy.

    I for one welcome our spud like overlords.

  4. I tried to point out the that if you linked the size of hissy-fit over people questioning the validity of a pretend professorship with the pomposity of claims to be a Quaker (when Quakers eschew titles) then there was a incredible increase in the reported levels of hypocrisy.

    Alas my research was deemed not to be sufficiently academic to be worthy of appearing on Murphy’s blog.

  5. Tim – could you stick what Murphy says in quotes? Easier to follow when we know who is saying what. Ta.

  6. But the government spending portion of GDP is fucking illusory! It just says how much government spends without any reference to value added. Being that a percentage of it’s financed by running a deficit, if it was a company it’d be long bankrupt & shut & not showing up in the GDP figures at all.

  7. It’s well known amongst the statistically literate that ice cream sales correlate strongly with drownings.

    BAN ICE CREAMS TO SAVE LIVES!!!!!

  8. But the government spending portion of GDP is fucking illusory!

    So what’s new?

    GDP is bollocks anyway, because you can trivially increase GDP by paying half the population to burn houses down and the other half to rebuild them.

    The whole concept of trying to summarize the health of a nation’s economy in one single number is simply insane, and merely plays into the lefties’ hands. ‘Sure, kids today can’t afford to buy a house, but tractor production has increased by three million tons under the new Five Year Plan!’

  9. For example, the US and UK are richer than France or Finland.

    Having your name start with “F” makes you poor; having your name starts with “United” makes you rich.

  10. Haha, sorry for the tricky questions making you look stupid Ritchie. Looks like I’m back in the auto-delete bin. Back to stealth sycophantic mode.

  11. Wagners Law?
    Could be better expressed as; politicians will attempt to buy votes with the electorate’s money.

  12. Best expressed mathematically as P=Gᶜ where P is the proportion of the economy diverted to public spending, G is the growth rate of the economy & ᶜ is the cuntishness of the political class.

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