CASE STUDY: ECONOMIC ILLITERACY

"Though it is not as true now as it used to be with the influx of immigration, the Scandinavian countries have a very small, homogeneous population. That enables them to get away with a good deal they couldn’t otherwise get away with. What works for Sweden wouldn’t work for France or Germany or Italy. In a small state, you can reach outside for many of your activities. In a homogeneous culture, they are willing to pay higher taxes in order to achieve commonly held goals. But “common goals” are much harder to come by in larger, more heterogeneous populations. The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention can’t do that. Politics exacerbates and magnifies differences."

Milton Friedman

In an ultraleftist pamphlet, Mr. Dusan Keber, former Minister of Health of Slovenia, repeatedly tries to confirm the rightness of theories concerning welfare economics as Mr. Jeffery Sachs tries as well.


In the article, there is no empirical evidence on the truth about Sachs's arguments of the welfare state. Beyond the edge, the propaganda concerning the influence of Keynesian welfare economics is boosted by the manners of the ideology rather than empirical investigation. Mr. Keber has defined himself as a leftist when he pinned the ultraleftist, anti-growth, pro-poverty and anti-progress political program entitled "People over profit" (Za ljudi pred profitom) which would ruthlessly lead Slovenia to further loss of global competitiveness and domestic stability. The program says nothing about the enormous size of public consumption which would presumably increase if the program were put into effect. Further, the program rampantly calls for raising tax rates on individual and corporate income. It aims to protect trade unions against market competition as well as it denies any possibility of radical labor market reform which still remains one of the foremost obstacles to the competitiveness of the Slovenian economy in a global sphere.



In the article, Mr. Keber says:

"In the late 40s of the 20th century, Friedrich August von Hayek wrote that high taxes are the road to serfdom and a huge threat to the freedom itself. Jeffery Sachs says that this statement is boosted by the interests of the capital and ideology and that there is enough evidence that goes in the opposite direction."



It simply cannot be justified that higher taxes lead to more prosperity. Recent and historical evidence shows quite the opposite examples of what Jeffery Sachs says. Higher taxes are usually the magnitute of progressive tax rates which do not stimulate "cross-section" economic activity. Numerous empirical studies have verified the negative impact of high taxes. Saying that tax system is designed in a static behavior, is actually a sign of deep misunderstanding of how economic processes work in the equilibria behavior. Hence, saying that the fact that high taxes mean lower prosperity, is boosted by the interests of the capital and ideology, is pretty much a sign of weakness in giving arguments. Economic growth is created through the productive behavior, generated by human capital. And there is an empirical evidence that the reason for lower tax rates is not "making the rich richer and making the poor poorer". The real reason for lower tax rates is the to increase the level of welfare and prosperity for all. The way to achieve this, is not to increase tax rates and boost consumption and spending; the real way to move further towards prosperity is to cut both; taxes and spending.



Mr. Keber, further, claims:

"Jeffery Sachs compares two groups of countries; one with low taxes and comparably small social expenditures and another one, mostly welfare countries with high taxes and large welfare expenditures. The first groups consists of Anglo-Saxon countries with historical grounds of laissez-faire economic policy of the 19th century, while the other group presents Nordic countries - Denmark, Norway, Finland and Sweden. In the first groups, there are comparably small welfare expenditures, averaging 17 percent of the GDP while there is increasingly larger social welfare expenditure rate at the average of 27 percent of the GDP. Nordic countries outperform the Anglo-Saxon countries on the majority of economic indicators. There is less poverty, income per capita is bigger, unemployment is similar, budgets are more stable. Nordic countries contribute budget outlays to education, science, research and development. They used the ICT (information communication technology) revolution faster than any other country in the world in order to raise the level of global competitiveness. According to World Economic Forum's Global Competitiveness Index three Nordic countries outperformed the United States."



Jeffery Sachs neglects one of the basic scientific facts - keeping other factors relevantly constant when working on periodic and time-adjusted observations. Welfare expenditure rate cannot explain the level of prosperity. Prosperity is measured through the economic growth and the increase of income and wealth per capita. Prosperity itself, does not emerge from government spending. It emerges from the ability of entrepreneurial sector to achieve high rates of market growth. Prosperity includes the free trade as well. Many unsophisticated "self proclaimed" experts still believe that the reduction in tax rates will result in lower tax revenue. Laffer Curve offers pretty much different results than static predictions. Lower tax rates on personal and corporate income channge the behavior of the dynamics of the productive behavior. Decreased tax burden means that increased incentives to work, save and invest accelerates the desirability of enterprises and households to increase wealth and their income level. Huge government spending leads to small economic growth. Hence, high public consumption rates (Sweden, Denmark) coupled with massive welfare expenditures mean that there is something seriously wrong with government policy. On one side, high government spending is exercised through high tax rates on individual and corporate income. This implies that the productive behavior avoids higher levels of productivity by tax sheltering and tax deductions. Progressive tax code rapidly increases compliance costs while flat tax codes make tax avoidance less probable and very costly. In effect, lower tax rates accelerate the economic growth and they also mean higher wage rates.



Ad.1: Economic indicators of the Anglo-Saxon countries outperform the economic performance of Nordic countries

In Sweden, not a single job in the private sector has been created since 1950. Unemployment rates remains high despite being shown as relatively small averaging 5,5 percent. The real Swedish jobless rate is 15 percent. The country has had a long tradition of labor training and unemployment support programs. Those individuals are, according to methodological details, not statistically included in the group of the unemployed. After years of exploding welfare statism, Denmark dropped from the 3rd to 7th place on the scale of world GDP per capita. Finland, faces a severe economic slumps in the beginning of the 90s after being pushed by the reduction of export propensity when the Soviet Union collapsed. On the way ahead, Finnish policymakers relied on privatization, liberalization and the deregulation. Iceland, once the sickest Nordic economic patient, achieved high rates of economic growth through laissez-faire economic policy under the leadership of David Oddsson who was inspired by Milton Friedman, Friderich August von Hayek and James Buchanan. Economic growth rates in Anglo-Saxon countries are exceeding the compound average growth rates of Nordic countries. Swedish 5-year compounded annual economic growth rate is 2,6 percent. In Denmark, the average 5-year economic growth is 1,4 percent, in Finland 2,8 percent, in Norway 2,2 percent and on 3,6 percent on Iceland. The average compounded rate of economic growth in Ireland is 6,4 percent, strongly outperforming the average rate of Nordic countries. In Australia, the average growth rate in recent 5 years equals 3,3 percent. In the United States and United Kingdom, job creation rates in private sector have skyrocketed since Ronald Reagan and Margaret Thatcher implemented free-market economic and structural reforms in order to boost competitiveness and achieve higher level of the GDP per capita. Contrary to what Mr. Sachs says, Sweden dropped from5th place in its welfare ranking to 112th in 2004. In previous periods, productivity has grown very slowly while the performance of the public sector has been awful. It has also been shown that employment statistics in Sweden and Finland has been modified by tricky methodolgical details when public sector employment and total unemployment rates have been slightly hidden and have, thus, covered the real unemployment and public sector employment rates. According to the stated indicators, it seems that Mr. Jeffery Sachs does not know what he's actually speaking, neglecting the whole panel of data and parameters required for a coherent economic analysis. What appears to be suitable for socialist policymakers, in reality reflects the story of Swedish myth. It cannot be understand why people like Jeffery Sachs interpret Swedish economic policy on the basis of high taxes while they avoid to tell that during the period between 1870 - 1950, the policy of positive free market non-intervention, the country created much of today's wealth.



Ad.2: Competitiveness is measured according to business models and private sector entrepreneurial strategies.

The resource of Information-Communication Technologies that, potentially, boosted the competitiveness levels of Nordic countries have been misunderstood. It has not been the government that created Nokia. Only one out of ten big size enterprises has been establish since 1970 in Sweden. Ericsson and Nokia have reached success because their business models suited the missing gaps in a global competition that enabled rapid stategic expansion as well as a boost in global sales which coexisted together the emergence of the new economy. The majority of successfully managed Swedish enterprises has been created in the years of Swedish road from rags to riches (1870-1950), on the path to free economy.

Ad.3: Expansionairy fiscal policy, increased government spending and high public consumption rate lead to economic stagnation and the loss of competitive position in the global economy

In his article, Mr. Keber continues followingly:

"Nordic countries can adjust social differences with open market economy. The outcome at the bottom of the social scale is sufficient, especially when we compare it with the U.S. case where the poverty flourishes and prisons are becoming overdrawn... American health-care sector is burdened and severe because it's private. Sachs says that Hayek was wrong. In strong and vibrant democracies, expansionairy welfare state does not lead to serfdom but into a just society, economic equality and international competitiveness."

The business environment in Nordic countries is singnificantly freer than in the rest of the world. In Denmark, for example, it takes 5 days in average to start a business, obtaining a business license is easy and closing down a business presents no major difficulties at all. Reliable business freedom coexists with sufficient investment and financial freedoms. It is empirically proven that generous welfare state, on the other hand, leads to smaller growth rates as shown by Armey Curve and Rahn Curve. Professor Robert J. Barro has demonstrated that the reduction in public sector size by 10 percent reflects higher economic growth rate by 1,8-2,8 percent. The health-care sector in the U.S. is burden very much by Medicare which is boosted throug government intervention and high public spending rates. It is an empirical evidence that private sector allocates resources much more efficiently than public sector can. Is health-care sector an exemption? The answer is no. Government health-care programs produce cost-inefficiency at the expense of taxpayers while greater supply of service leads to price reduction and greater quality.

The relative success story of the Nordic countries is very much the result of laissez-faire economic policy back at the beginning of the 90s when Nordic countries faced a severe economic stagnation. In Sweden, private health-care saving schemes were allowed, vouchers boosted the performance of the education system, telecommunication sector was liberalized and the deregulation vastly helped to stimulate the entrepreneurial performance. Free-market institutions obtained a greater role in economic progress while the size of the government started to diminish. It has also been empirically shown that regulation strongly influences economic performance. The proponents of the Swedish model have claimed that the model itself is a reason for evenly greater Swedish economic performance. The truth is very far from this statement. Swedish companies have been breaking export rates and the quarterly economic growth rate have sparked due to deregulation programs that stressed the potentials of the Swedish economy and helped to stimulate the performance of the private sector at a low inflation rate controlled by Riksbank.

If Nordic countries continued to follow the economic doctrine of Keynesianism, its performance would end-up in a severe economic depression when it would take a long time to recover from the policy of "generous welfare state" based on expansionairy spending and high public consumption rate. In Sweden, despite the welfare state, Foreign Direct Investment (FDI) fell to zero. Facts, figure and data on international competitivness show that parameters of low spending, the economic policy of liberalization and deregulation, the rule of law, free trade and competition lead to higher economic growth rates, more economic freedom, and higher levels of prosperity and wealth creation.

Literature and further Reading:

Christopher S. Allen: Forming Left Wing Coalition Governments? Sweden and Germany in the early 21st Century, Annual Meeting of American Political Science Association, Philadelphia, 2006 http://csallen.myweb.uga.edu/CSAllen-APSA-2006.pdf

Kathleen Bawn, Frances Rosenbluth: Short versus Long Coalitions: Electoral Accountability and the Size of the Public Sector http://sitemaker.umich.edu/epss/files/paper-kathleen_bawn.doc

Die nordeuropäischen Wohlfahrtsstaaten, Zusammengestellt von Norbert Götz, Lehrstuhl für Nordische Geschichte an der Universität Greifswald, Stand: Dezember 2000 http://www.uni-greifswald.de/~skanhist/Publikationen/welfare.htm

Index of Economic Freedom 2007, Heritage Foundation http://www.heritage.org/research/features/index

Per Bylund: How Welfare State Corrupted Sweden, Mises, 5/31/2006 http://www.mises.org/story/2190

Daniel Drezner: Would the Scandinavian Model for the United States? http://www.danieldrezner.com/archives/002565.html

Free Markets and the End of History, Interview with Milton Friedman, New Perspectives Quarterly, Vol. 23, Winter 2006 http://www.digitalnpq.org/archive/2006_winter/friedman.html

David Ibison: Real Swedish jobless rate is 15 percent, Financial Times, June 15, 2006 http://www.ft.com/cms/s/c18430e6-fc0b-11da-b1a1-0000779e2340.html

Stefan Karlsson: Swedish FDI falls to zero "despite" the welfare state, Mises, August 26, 2005 http://blog.mises.org/archives/004000.asp

Stefan Karlsson: The Sweden Myth, Mises, 8/7/2006 http://www.mises.org/story/2259

Mikko Matilla: Economic Changes and Government Popularity in Scandinavian Countries, British Journal of Political Science, Vol. 26, No. 4 (Oct., 1996), pp. 583-595 http://links.jstor.org/sici?sici=0007-1234(199610)26%3A4%3C583%3AECAGPI%3E2.0.CO%3B2-W

Johnny Munkhammar: Swedish Failure and Slovakian Success, Reply to Vladimir Manka http://www.munkhammar.org/pdf/ReplyManka.doc

Johnny Munkhammar: A Coup d'Etat in Sweden, Wall Street Journal, September 13, 2006 http://www.munkhammar.org/pdf/WSJE.doc

Johnny Munkhammar: Beyond the European Social Model, Open Europe, 2006 http://www.openeurope.org.uk/research/fullbook.pdf

Bertil Ohlin: Tendencies in Swedish Economics, The Journal of Political Economy, Vol. 35, No. 3 (Jun., 1927), pp. 343-363 http://links.jstor.org/sici?sici=0022-3808(192706)35%3A3%3C343%3ATISE%3E2.0.CO%3B2-Z

Terence Roth: Sweden's Hidden Jobless, Wall Street Journal, June 1, 2005 http://online.wsj.com/article/0,,SB111714741454244517,00.html

Nima Sanandaji, Tino Sanandaji: How do you say "Economics" in Swedish? Unemployment, entrepreneurship and working ethics in the Swedish welfare state, The New Libertarian, 2006 http://www.neolibertarian.net/articles/sanandaji_20060414.aspx

Rok Spruk: Sweden, Success and Failure, Capitalism & Freedom, January 17, 2007 http://rspruk.blogspot.com/2007/01/sweden-success-and-failure.html

TIGER FROM THE SOUTH

In January 2007, the government of Macedonia instituted a tax code with a single flat tax on both personal and corporate income. Further signs of attracting Foreign Direct Investment are moving along as well. A new portal Invest in Macedonia offers a bulk of information and guidelines to investors and entrepreneurs looking foreward to set a joint venture or pursue greenfield investment in Macedonia.

Estimates show that until 2009, the average economic growth rate will reach 6,5 percent reflecting strong investment growth and the growth of export. Tax cuts could substantially boost productive behavior towards creating more revenue on the market as well as better investment decisions in the entrepreneurial sector.

Macedonia's economy is 60,8 percent free with the highest degree of economic freedom in the Balkans. Trade freedom, fiscal freedom and monetary freedom are high while property rights protection and freedom from government are insufficient. Business sector still faces tremendous difficulties in operations and capital transactions. For example, the minimal capital basis (measured as the percentage of income per capita) required for starting a business is equal to 112 percent, reflecting a significant administrative burden faced by the businesses as a consequence of hard-hand regulation. Trade unionism is widespread in the form of labor monopolies. The trap captured by the influence of trade unions in labor policies is figured out when we take a closer look at wage-cost ratio dynamics. Non-wage costs of the employment in the business sector represent 33 percent of the salary. Labor regulations under restrictive government regulation strongly hinder the growth of productivity and openness in the labor market. Extensive government restrictions in various area lead to corruption which punitively undermines the potential of the economy as a whole. Widespread corruption is basically a sign of weak and indefinite protection of property rights by judiciairy. In such circumstances, the rule of law as a structural requirement, cannot exists in relation to liberty and property.





As an improved structural and economic performance is needed to sustain high levels of global competitiveness, low tax burden, smaller size of government and high openness to globalization are definitely needed for an economy such as Macedonian to move toward the per capita GDP convergence through economic growth which includes flat tax, dynamic education competition, a full degree of openness to globalization, sound macroeconomic and monetary policy as well in order to avoid high public debt, powerful spending and the expansionairy fiscal policy that undermine the competitive performance of the economy in the long run.

JACQUES CHIRAC - THE WORLD POLICEMAN

Jacques Chirac has demanded that the U.S. sign the Kyoto protocol or else a carbon tax on imports from countries that have not signed the Kyoto accord (the U.S. included) will be imposed. Such an absurd carbon taxation would seriously violate the international trade rules while a unified carbon tax would have a damaging impact on the competitiveness of the EU which is strongly hampered by high levels of tax burden. France is no exception. Jacques Chirac's acts concerning environmental protection are very far from being equal to his words. In fact, Jacques Chirac has publicly supported farmers whose emissions present an enormous amount of pollution. Common Agricultural Policy (CAP) is a statist experiment which protects European farmers against global competition while recent studies have shown that a great proportion of pollution in Europe is caused by dusty disposable farm emissions in the environment which affects clean water and other sources of life as well. It is very odd that Jacques Chirac is voicing so loudly against the countries that did not signed the Kyoto protocol while on the other side, he rampantly stands tall with French agricultural lobby that aims to work on rent seeking through political support. He also conducted nuclear tests in a Pacific atoll back in 1995. Jacques Chirac has aggressively stood against free-market reforms proposed in Europe. He supported harmful protectionist policies and demanded that tax competition is a crime. From this perspective, an enormous amount of budget outlays is contributed to farmers in the form of farm subsidies while on the other side, the story of the most competitive economy until 2010 is becoming more like a turnpike, waiting to be blown away as well as France's poor economy is loosing its cliff on the level of global competitiveness.

THE PRICE OF GREATNESS IS RESPONSIBILITY

Nearly a year ago, the first posting on my blog was publish. It was about professor dr. Cyril Zebot's heroic life. In Slovenia, the country where I was born, professors dr. Cyril Zebot, dr. Ljubo Sirc and dr. Alexander Bilimovich had left a tremendous legacy of academic and professional economics that had been ripped off and banished when the WW2 and the arise of communism devastated Slovenia's economic potential. Professor Zebot had a vision according to which Slovenia would immediately become an independent, democratic and a sovereign country after the WW2. Historical circumstances had turned differently. Socialism's mismanagement left behind uncompetitive and strongly state-controlled enterpreneurial sector in which joint-ventures, risk-taking and productive behavior had no common place. The economic development under socialism devastated the potentials of Slovenian economy to become one of those small loudly roaring tigers that have had created an economic miracle. In the late 80s, hyperinflation leaded to a negative interest rate through which extensive borrowing and loaning had been made possible while the public debt has been growing largely. One fifth of the Slovenian public debt has been inherited from the tragic legacy of communist Yugoslavia. Professor dr. Ljubo Sirc has emphasized, for example, that in 1939, income per capita level in Slovenia, amounted up to 80 percent of the Austrian income per capita. Today, the average income per capita level is improving comparably, while according to basic dynamic calculations and estimates, Slovenian economy will need more than 30 years to catch the Austrian level of income per capita. Dr. Alexander Bilimovich emigrated to Ljubljana when the communist revolution seized power. At that time, professor Bilimovich was placed among top economic scientists in the world. Professor Sirc has emphasized that professor Bilimovich had been, as an Austrian economist, telling that the theory of value cannot be objective but only subjective on a permanent basis. His book "Introduction to Economics" is an excellent masterpiece and preserved legacy that truly deserves to be examined further.

What does this has to do with my blog? Referring to the content, February 2006, was the beginning of my blogging venture. The amount of ideas connected with free market economics, macroeconomic policy, microeconomic spots, tax reforms, management and business, globalization, free trade, international economy, monetary trends and libertarian challenge, simply needed a place where all those freshly breathing ideas would be posted, written and well seen. When I opened my blog I could not imagine that one year after the opening, the blog would have so many visitors on a daily, weekly and as well as monthly basis. 459 000 visitors since February 2006 is a success I haven't dared to think about actually. January Rankings of the Honor View showed that Capitalism & Freedom had been the second most oftenly rated progressive blog in Europe. In February, the blog has been ranked 5th. There are significant names on the ranking such as Mises Institute and Stefan Karlsson. In the field of free-market economics, Capitalism & Freedom is ranked 14th among top 100 blogs in this industry. The blog suddenly shifted up to 10th place on the rank of top blog sites. I couldn't believe this is real in less than one year.

Success demands challenge and challenge demands productive behavior. This is tightly gripped to developing blog marketing strategies through which high rates of visiting are exercised. In essence, the question wheather blog establishment works or fails can be compared to the question that is usually common among marketers and strategic managers. Marketers ask wheather how product development strategy will reach target customers while strategic managers ask wheather strategic capital business models will suit the long-term sustainability of the firm in an ever-changing business environment while bloggers ask what kind of particular strategy shall be used in order to meet success and hot-shooted inflow of frequent and incoming blog visitors. A good blog neccesarily includes the value of quality which is only one tool of an efficient mapping strategy. The value of quality is basically referring to the content of the blog while design and graphical sophistication play a crucial role as well. The analytical effects can be seen through instrumentalism especially in the field of free-market economics blogs. Strategic approach to suffcient writing is no longer applied to the demand for extensive writing. It is applied to excellence, elegance and innovation respectively. In the field of doing blogging in free-market economics, direct mailing of the posts is no longer efficient as well. Target marketing demands spontaneous fractions of the content to develop. Direct mailing is inefficent in its intention because it is, by empirical notice, a typical signal of massive advertisement. Instead, innovating blogging could be reached through interactive content upon which each blogs gets a profiled value. Think about hotmail's success. There were no heavy and massive advertisement on the internet and TV about hotmail. Its success is largely a part of the new approach to consumer behavior of the 21st centuty. Hotmail has been a triumph of innovation. It satisfied the need of web visitors for having a free email account. No propaganda was used, because Hotmail's venture grew significantly as it emerged innovatively. The same applies to blogging. Basic blogging when extensive writings are posted will hardly find its grail of growth in the future. Actuality is the first pillar of the blogging venture success. Marketing strategy is of a vital importance in this particular case because it largely determines the outlay of the blog and the frequency of visiting as well. Actual headings are factually the fundamental basis to which blog popularity is attached. Excellence is the second pillar of the blogging venture success. Of course, the basic question is how the excellence can be achieved. A reasonble length of posts and clear post messaging are perhaps the most needed requirements. Productive writing is the third pillar of blogging venture success. It simply means that content should be made attractive, courious, interesting and research based. For example, when you post how the strategy of the Celtic Tiger galvanized Irish economic transformation, you cannot expect the post to become popular if there're no additional sources referring to the title of the posts. By them, I mean mostly movies, newspaper articles, citations and every-day life events. It's different when you post something a little bit more research supported and scientific while it is harshly illusionairy to expect visitors' boom and blog popularity when research supported writing and popular methods are blended. Both can create a value of quality when in a separate order. I learned that very much during the first period of blogging. The fourth pillar of successful blogging venture is innovation measured through blog market awareness about the product - about your blog. In a global economy, Zipf's law (the winner takes it all) has become a part of our rational expectations through which we adjust our decisions to external shocks. Thus, innovation-based blogging is most likely to become the future of successful blog. Innovation usually waves chain reactions where the followers are running for the idea of its founder. That's a simple case study of Zipf's law. Innovation is based on ideas while ideas spread around like viruses. Ideas are the key to unleashing the epidemics of the innovation. Being innovative and putting innovation into blogging comes out as an output of successfully established blogging venture. Blogging creates power as trading with ideas yields high marginal returns and powerful revenues that reflect a successful blogging venture case.

Winston Churchill once said:
"We shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

Pursuing greatness always demands responsibility on the first place. Without free market, it could hardly be possible for blogging to reach such a tremendous success. An important contribution to my personal inspiration (writings, articles...) for blogging present professors Milton Friedman, Gary S. Becker, Robert J. Barro, Greg Mankiw, Friedrich August von Hayek, Gordon Tullock, James Buchanan and Mart Laar, Daniel J. Mitchell, Johnny Munkhammar, Seth Godin, Joe Girard, Malcolm Gladwell, Donald Trump, Michael Sexton and others who gave me a very much needed boost to start posting my ideas, views and observations on the blog. I hope that in the future, you, the visitors from all around the globe will feel comfortable on my blog as you're the one who rate the quality of the venture in which I enjoy very much.

Thank you.

Rok SPRUK, Capitalism & Freedom

EUROPE NEEDS LABOR MARKET FREEDOM

Johnny Munkhammar, The Urgent Need for Labor Freedom in Europe and the World, 2007 Index of Economic Freedom

TAX COMPETITION YIELDS PROSPERITY

"Zurich will be the biggest Google location outside the US"


Stefan Keuchel, Google Spokesman in Switzerland


Tax federalism is a marvelous system. It allows different preference to come into action but as the most important thing - it creates the structure of tax competition among governmental units so that when the competition among various units, firms, individuals or even political units is established, no statist welfare (anti-growth) programs could yield better results. It is very much an empirical recognition.

In Europe, the cradle of state welfarism, high tax rates on corporate and individual income are combined with rigid structure of the labor market through which extensively restrictve governmental regulation creates the environment of labor sheltering which is a gateway to structural unemployment. It usually becomes very tough to tackle it, when policymakers are unwilling to pursue structural reforms in various fields. High tax jurisdiction presents a striking punch to human capital creation.

According to a vast amount of empirical studies, human capital is the main driver of economic growth. When strongly progressive tax rates are put into action, human capital switches its behavior towards the evasion. This comes into effect when brain-drain explodes. In recent years, numerous educated and highly sophisticated graduates have escaped European countries because high taxation did not allow them to enjoy the fruits of economic growth. High tax rates in Germany, France, Sweden, Slovenia and Italy as well as in several other environments, punitively penalize the productive behavior.

Thus, policymakers in such countries are constantly concerned with tax revenue instead of being focused on how to implement incentives to produce and serious tax reform. High tax legislation inevitably reflects the cage in which the government has fallen. Interest groups and rent-seekers spent a harsh amount of time on putting pressure on policymakers not to implement structural and tax reforms because, as a consequence, an important part of their non-market income would decrease significantly.

As a matter of fact, if we take a closer look at the budget outlays, we see that the pressure of social groups on the government is endless. Those groups present an important source of financing political campaigns and political support as well. The government has to collect enough revenue to finance those groups through taxpayers' money. Thankfully, basically logical principles cannot fall off the cliff. Laffer Curve clearly explains the behavior of tax rate-tax revenue relationship.

When tax rates are low, government collects more revenue than when tax rates are climbing high. Empirical evidence shows that low tax rates energize productive behavior such as risk-taking, work and entrepreneurship. Low (flat-rated) taxes enable more disposable income. In the long run, the cumulative effect of low tax rates, reflects higher level of prosperity as well as a standard of living much higher than it would if the productive behavior were penalized through extensive strongly progressive taxation of corporate and individual income.

But there is an exception in Europe. Switzerland. Tax competition among cantons is spinning further as cantons are given a full degree of decision making about corporate tax rates. In recent years, tax rates on corporate income fell dramatically in the majority of cantons. Numerous international companies have set their holdings there in search of lower tax rates.

Kraft Foods has moved their headquarters into Zurich. By the middle of the year, the European headquarters will be moved from London and Vienna to Zurich. Kraft has rented office space that can house up to 600 people near Zurich airport. The relocation service has offered prime conditions for companies. As announced, Google will radically expand its business activities at the Hürlimann industrial complex in Zurich. The new premises provide a space for a total of 1,600 employees. After India, this will be second software development center abroad.

Prime business conditions for companies, coupled with solidly sophisticated infrastructure, are often the main channel for further influx of foreign firms. In Switzerland, good transport links, sound supply of financial services and a quality of life that attracts a high educated workforce and research facilities offered by Federal Institute of Technology (ETH) and Zurich University, are among the most stunning pillars of a growing capital inflow from abroad.

Google, for example, has recruited ETH spin-off technology firm Cybercity to help develop an interactive map Google Earth. Cybercity has utilised its skills to put detailed faceds on blank buildings on the internet program.

Swiss economic and business climate is boosted by low corporate tax rates offered by cantons in Switzerland. The Swiss strategy has been awfully criticized by its neighbouring countries. The EU, for example, has been roaring loudly against the tax competition model in Switzerland. Many foreign firms, including Kraft, have moved to Switzerland to reduce the aggregate tax burden caused in typical environments with punitive corporate tax rates.

The strategy of offering tax breaks to investors is largely a reason why Swiss business environment is the most wanted from international companies seeking to reduce the cost pressure resulted from unfair high taxation of corporate and individual income. Companies evaluate a business location in accordance with operational conditions.

ow tax rates on corporate and individual income are not a sole factor in attracting companies from abroad. Sophisticated and high-quality business framework for companies and investors vibrantly attract them as taxation and labor issues in high tax countries are becoming irresistable. Saving taxes and generating profits enable company to reinvest in its business and expand largely.

The competition among cantons to set corporatate tax rates independently from the federal government, was hot at the beginning of the last year, when Obwalden slashed its rates to 6,6 percent (!). Obwalden attracted 376 firms in the first 11 months of 2006, three times more than in 2005.



Tax competition is what has made Switzerland an economic tiger on an international basis. Very competitive domestic as well as international corporate tax rates are inviting international companies to set their facilities and holdings there. Tax competition is a vibrant mechanism through which physical and human capital engine the productive behavior.

Tax competition is a "big-mac" opportunity for small countries such as Slovenia, Estonia, Denmark and Iceland. Small countries carry a feature of faster adjustment to real competitive advantages in the global economy. Without the implementation of radical structural reforms, competitive tax reform, liberalization and deregulation, entrepreneurs from various countries will not go to Switzerland solely on vacation, they will probably go there forever.

MILTON FRIEDMAN DAY

Happy Milton Friedman Day everyone! The new documentary about professor Friedman, The Power of Choice: Life and Ideas of Milton Friedman, is being broadcasted by PBS stations. Professor Friedman was one of the greatest heros of the 20th century. His legacy of theoretical perfection and academic excellence continues to live vividly as his ideas of free enterpreneurship, personal liberty and open society echo the spirit of the man who revolutionized the economic and social life in the 20th and 21st century. We will always remember him.

Recommended further reading:
- The Power of Choice: Life and Ideas of Milton Friedman
- Paul Krugman: Who was Milton Friedman
- Milton Friedman Day
- Greg Mankiw; Milton Friedman Day
- Challenge the Status Quo

I'M A PROUD FRIEND OF ISRAEL

Since September 2000, Israel and its citizens have been going through dark times. Homicide bombers blowing themselves up (and by that taking lives of innocent civilians with them) have become an overwhelming, frightening, everyday sight in the streets of Israel. Israel is being compelled to fight a fierce war against the terror infrastructure of the Palestinians, and now has been forced to open a second front in Lebanon, against the terrorist group Hezbollah.



Israel and its citizens need to know their friends and supporters are standing by them at these harsh times!

Are you a friend or supporter of Israel?

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FLAT TAX POLICY FOR A PROSPEROUS FUTURE

Alvin Rabushka of Stanford University has publihed a brief paper discussing the spread of flat tax regimes around the world. The global behavior once again demonstrated that smaller and virtually unseen economies tend to absorb their comparative advantages much faster than their hammering counterparts. The tax code in Kyrgyzstan established a 10 percent flat tax on personal and corporate income. The immediate chain reaction move to neigbouring Kazahstan where the policymakers seriously consider the implementation of flat tax and a total re-establishment of the country's tax code. In August 2006, Uzbekistan's parliament adopted the budget which provides for several significant tax cuts. The corporate tax rate will be set at 10 percent in 2007 while individual income tax rates will also rapidly shift toward a lower proportional burden of individual income. Flatter taxes are also spreading across Europe. Czech Republic, Poland, Macedonia and Montenegro are considerable examples of a productive tax policy. Montenegro, for instance, set the corporate tax rate at 9 percent. Signs of improvement in the reduction of tax burden are also seen in Spain and Iceland where significant cuts have been made in terms of reducing gradual levels of taxation.

Further analysis of changes in tax policy will soon be posted on my blog.

THE ECHO OF BUSINESS MOBILITY

The ability access the information is coherent with the mobility of the business sector to adjust its capacity toward the reach of further trajectories of optimizing the flow of information. Recent Nokia's research paper on a holistic approach to business mobility has outlined new ways and linking channels through which the mobility of adjustment is exercised. Of course, business mobility varies from specialized firm functions and thus cannot be taken as unified, especially from the microeconomic point of view. In sum, business mobility could be separated into three main branches, (1) individually preferential mobility which aims to dynamize the information access regardless of location, time and day, (2) the mobility of processes streams to the point where cost-adjusted efficiency meets stated business objectives and (3) a technological mobility underpinned by a sound infrastructure within the firm. The opportunity costs of degressive mobility can skyrocket when firm's output size does not meet strategized business objectives. Among individuals, low flexible usage levels and the lack of adoption highlight the resistance to adopting new solutions. Opportunity costs of degressive mobility do not galvanize operation processing since the gap between cost efficiency and low levels of productivity goes up. According to recent experience, technological impact of degressive mobility implies slowly accelerated integration of sophistication. The inevitable result is that market distorsions occur unexpectedly. Negative effects of low mobility could increase unpredicted price pressures while this could stimulate falling of the edge of competitive position in the market. In microeconomic literature, recent suggestions and mobility behavior observations suggest that fewer steps are vastly needed to avoid the grasp of 'black hole'. Sound management implementation and decision policies could carry out a significant improvement in the environmental reform in the firm where mobility could become attractive to employees and thus, significant cost burden would disappear. The benefits of greater mobility are astute; increased levels of satisfaction and motivation, healthier balances, the optimization of corporate capacities, increased individual efficiency and team performance. Operational processes gain from increased mobility in terms of productivity's open space, improved agility and responsiveness, improved customer service and openly dynamic space for further service opportunities. The set of control of information flows is also required to prevent information from being disputed by inside trading. The control of external shocks is a little bit more difficult since this could seriously threaten the agility of the units within the firm. Risk could be minimized through support policy and system's response to immediate changes and shifts where the gap between assumed productivity and coupled efficiency is stimulated through paying not enough attention to internal efforts in order to dynamize the spectrum of mobility.

Firm's structural improvement in internal environment as well the control of absorbing risk predictions in decision making, is definitely one of the most slamping steps ahead of current market performance. As I have demonstrated above, dynamic mobility stems from individual drift, operational processing to technological readiness to predictable and unpredictable changes. Not paying enough attention to mobility within the firm could seriously impair abilities and potentials of the firm to enhance productivity growth and thus stimulate individual output and team performance.

PRODUCTIVE BEHAVIOR IN SWEDEN

"The Swedish model serves politicians as an inescapable excuse for raising tax rates on personal and corporate income as well as for a guiding tool in how to undermine the dynamics of the labor market through restrictive government regulation which sets heavy obstacles to productivity growth in the business sector. Sweden's image of a social country that creates "social tranquility" is largely a myth that has become so sticky and undroppable to many unsophisticated experts."

Rok SPRUK, the author of Capitalism & Freedom

Nima and Tino Sanandaji have written a thorough brief analysis on the state of productive behavior in Swedish economy. The authors highlighted unemployment, entrepreneurship and working ethics as a system in which there is only little room for entrepreneurship. The article can be read here.

THE BIOTECH MIRACLE IN DENMARK

Danish biotech companies are reaching a tremendous success after having invested nearly DKK 5 billion (EUR 675 million; USD 520 million) in biotech industry. Danish companies have been far more successful than their European competitors, especially when it comes to raising capital from venture companies. Although Germany has more biotech companies than any other European country it raised only USD 101 million from venture companies while the figure for Denmark from January to September was USD 196 million. In Sweden, for example, the total value of raised venture capital was USD 24 million. Danish biotech companies grew from small companies into established perspective ones. A significant contribution to this success belongs to well sounded venture capital markets as well as to dynamic and well-adjusted investment behavior. A closer look at OECD Figures reveals that Denmark has attracted more capital venture companies, in the percentage of the GDP, than any other European country. Very much of the success is attributed to 'Medicon Valley' biotech network based in Øresund region which includes Malmö and Copenhagen. Recent trends have shown that investment opportunities are sounder in Denmark as they lean towards. Thus, companies are running high on cyclical effects. Danish companies are known after their spiral financial ability and that creates the basis for further value empowerment. Statistics shows that the number of Danish biotech companies is steadily growing as there has been a strong 83 percent increase since 2000. Strong sustainable component of research and development supporting companies has contributed its share to the biotech miracle of Danish companies as those companies rely on the service and operational quality which suitably goes in line with growing challenges in the sector of biotechnology.

Source: The Copenhagen Post, Jyllands Posten

INCONVINIENT TRUTH FOR AL GORE

Mr. Flemming Rose and Mr. Bjorn Lomborg wrote an article on how Al Gore finds the other side of the global warming as fundamentally unacceptable. Al Gore's road to an environmental obsession will leave an average person 30 percent poorer and thus much less able to tackle the problems in a fast-changing world. Al Gore also highlights malaria problems in Nairobi, Kenya, though WHO has published different findings. Today, Nairobi is free in malaria but in the 1920s and 30s, when temperatures have been much lower, the malaria occured constantly. Al Gore mischiefly ignores the facts about Antarctica. His movie presents only pictures of 2% of dramatically warming part of Antarctica but he ignores the fact that 98% percent of Antarctica got cooler over the past 35 years. He adopted a similar approach in the case of shrinking sea ice levels in the Northern Hemisphere although the shrinking of ice mass into the sea in the Southern Hemisphere accelerates as well. It is estimated that 2000 more people in th U.K. will die from global warming but at the same time, Al Gore rambles the fact that 20 000 lives will be saved as colding temperatures will decrease.

In the light of government intervention, global warming could cost us $553 trillion over time. It's a crucial passage to make the right decisions to face the inevitability of global warming. At the same time, the global warming challenge is an opportunity for an entrepreneurial, research and technology sector to device reasonable and cost-benefit solutions to the problem instead of implementing threatening governmental regulation through the launch of poisenous intervention. Global warming is very much like an equilibrium. Some forget to take well-known facts into account and thus consider the problem from wrongly seminated assumptions.

SWEDEN: SUCCESS AND FAILURE

“We must understand that we are at the beginning of the creation of a new European economy in the context of a rapidly changing global economy. The stagnation in some of the central economies isn't the really interesting story at the moment -- the interesting story is the success of the radical reform policies initiated by Estonia a decade ago and recently reinvigorated by Slovakia. Over time, the success of these reforms, and the new growth opportunities they are creating, will influence all the other European economies. Few things have been as misdirected and counterproductive as all the talk about safeguarding some imaginary European social model. It has created the impression that change and
globalization is something that is threatening and dangerous, and that the
task of politics is to resist change. It has been truly damaging to Europe as a whole.”
--Carl Bildt

Swedish model is oftenly traced in mainstream media. It is also interpreted on a large basis especially in transitional developing countries. In the context of economic debate, critics, columnists, commentators and also professional experts point out that Sweden is the most successful society the world has ever known. In Slovenia, the economic debate about Swedish model of combining social welfare and sound economic performance has been reaching its peak as well. The question that comes to our mind is wheatear Swedish model, based on high income tax rates, extensive welfare and income redistribution, is really as efficient and productive as many academics and self-proclaimed experts say. In Slovenia, there is a hot debate when the country is on crossroad. Some claim that Swedish model is the most efficient and guaranteed option for Slovenia to be successful in the future while only a tiny minority (myself included) warns the public about potential dangers of copying the Nordic model. Misguided intellectuals are, indeed, very much in favor of copying Nordic problems instead of solutions. Proponents of exploding welfare state are forgetting that there is no such thing as a single Nordic model and that Nordic models frequently involve a good set of solutions. Is the Swedish model of high taxes, increased regulation and government intervention truly a wonder of the earth as
falsified unsophisticated and misguided experts say? They ignore the fact that due to Swedish model which they justify; Sweden has slammed into long-term economic recession after having achieved the highest economic growth rates during 1870 and 1950.

The story of Swedish success started back in 1860 when economic policymakers started to launch the implementation of liberal economic reforms based upon the principle of low rate of public expenditure. Accumulated set of solutions and industrial revolution stimulated Swedish economy at that time. Quick and immediate structural development outshined Sweden’s historically most reputed entrepreneurs and innovators like Alfred Nobel, Sven Wingquist, Gustav Dahle and Baltazar von Platten. In the period of rapid economic transformation toward free and unregulated market, entrepreneurial phenomena, such as Ericsson, SAAB and Volvo have been established and set on track. On the road to free economy, the birth of entrepreneurial generation of innovators had been the foremost basis of further economic and structural progress (Munkhammar, 2006). Another reason why Sweden safely enjoyed in period of prosperity, is that since Sweden has not been involved in any kind of war effort since 1809. The neutrality of Swedish foreign policy resulted in the avoidance of war conflicts and several disputes which plagued the world during the 20th century. The early
construction of the Swedish model had been based upon the expanding investment in human capital infrastructure (Norberg, 2006). Consequently, the Swedish GDP per capita between 1860 and 1950 had been the fourth highest in the world, right behind the United States, Switzerland and Denmark (Johnsson, 2003). After 1950, Sweden went socialist. The government started to run an expansionary policy of rapid growth of public consumption and welfare spending. It grew from 20 percent before 1950 to an enormous 50 percent of the GDP in 1976. Marginal tax rates on personal and corporate income were raised on a yearly basis. Socialistically streamlined economic policies of Olof Palme constantly included tight regulation of business sector and the process of collective bargaining through which trade unions enhanced its monopoly positions in the market. Peaking up at 83 percent, the rate of unionization had been the broadest in the world. Economic policies of several socialist governments pushed Swedish economy away from the advantages and benefits of global economic growth. Macroeconomic impacts of such policies have been disastrous. After trade unions collectively demanded wage increases, despite the fact that marginal productivity rates were negative, inflation expectations grew enormously after series of currency devaluations. In 1985, Swedish government was determined to deregulate the financial sector with a particular emphasis on banking reform. This was a necessary step forward. Terrible side effects of banking reform were on its way ahead. The interest rate was negative and thus consumer lending skyrocketed. Consequently, inflation accelerated much quicker than it was anticipated and assumed by the central bank as well as rapid growth
rate of consumer lending at negative interest rate, create stock and real estate bubbles. Exchange rate was fixed and the level of competitiveness of the Swedish economy had been at the lowest point ever recorded in modern history. Latter government of Mr. Ingvar Carlsson implemented a wide variety of moderately free-market economic and structural reforms. Currency control
was abolished and marginal tax rates on individual and corporate income were cut. At the
beginning of the 80s’ and 90s’ the economic growth rate was rachitic. Low levels of direct corporate taxation coupled with high nominal interest rates and unexpectedly decreasing level of prices caused high real interest rates what accurately stimulated the explosion of the real estate bubble on the market. Aftermath, the oil shock followed and Swedish export sector was stroke by a major hit. As a result, the volume of international trade between Sweden and its biggest trade partners at that time (U.K., U.S. and Finland), decreased significantly as those economy were severely hit by a global economic downturn. Consequently, Swedish economy faced a deeply rooted economic recession in the beginning of 90s’. After the abolishment of currency control, Swedish government pledged not to stimulate the devaluation of the Swedish crone. Swedish central bank, Riskbank, defended the currency by increasing the level of interest
rates. As currency speculators knew that surprisingly high level of interest rates will not be retained, they recharged the currency attack by knowing that devastated currency regime would not yield better conditions as those offered by the central bank, Riksbank. Consequently, real interest rates went double-digit and the recession prolonged. Fixed exchange rate regime collapsed in November 1992. After a dramatic increase in the real interest rates and a deep economic recession, the majority of banks, except for Handelsbank, consequently went
bankrupt due to generous lending practices. Macroeconomic profile of that time was terrible. In 1993, the gross domestic product was 5 percent lower than in 1990. Unemployment increased by 10 percent as well as the budget deficit increased by the same rate.

According to international economic surveys, Sweden fell on the 20th place in the world on the scale of income per capita. The economic turn is traced back in 1992 when the devaluation of Swedish currency boosted Swedish exports. The recovery of Sweden’s international competitiveness was begun by central bank’s dramatic decrease in interest rates and by a smooth cyclical recovery at the end of 1993. A wide variety of liberal economic reforms was introduced under the leadership of Mr. Ingvar Carlsson and Mr. Carl Bildt. Those structural reforms immediately ripped off currency control and deregulated the financial sector. The privatization was on its way as well. The liberalization of retail and telecommunication sector and of airplane industry, were effectively enforced. An efficient inflation-targeting policy framework in search of nominal anchor (Bernanke, Posen, Laubach, Mishkin, 1999)
contributed very much to the effectiveness of monetary policy in stabilizing the price level. One reason why Sweden fled into economic recession had been associated with highly progressive tax system. Today tax revenues present 50 percent of the GDP. Between 1950 and 1980, the aggregate tax burden increased by 150 percent respectively (Karlsson, 2005).

Today, the marginal tax rate on individual income equals 57 percent. In early and middle 70s, the rate of individual taxation peaked at 90 percent. After coherent structural measures were undertaken in the early 90s, the individual income tax rate was reduce despite still being triggered to 51 percent. Corporate tax rate of 28 percent is moderate compared to other high-tax jurisdictions. Before 1991, employers faced a 52 percent corporate tax rate. The rate dropped to 28 percent in the future period. Payroll tax extends to 40 percent of the total amount of collected revenue from income tax. 32,28 percent of the payroll tax is paid by employers. Expensive public welfare programs of early retirement, unemployment support
and social transfer payments have been financed through the revenue collected from the payroll
tax. The wealth is also taxed. Assets up to the value of SEK 1 500 000 is excluded from the wealth tax is currently rated at 1,5 percent. The overall picture of tax burden is awful. From 1950 to 2000, the aggregate tax burden moved from 21 percent to 53,9 percent of the total output. The sources of tax revenue are mostly individual and corporate income (37 percent), payroll (29 percent), goods and services (26 percent) and some other sources as well (8 percent).

Sweden is historically known after high tax rates on personal income. Reality highlights a marred damage of high taxation. The most successful and high-income taxpayers must pay are taxed at 60 percent on each further earned krona. High, burdensome and progressive taxation is making a heavily complicated and non-simultaneous tax system. Such tax system is marred by devices of tax fraud and avoidance. It hampers further investment, saving and dynamically innovative entrepreneurship. In several studies, OECD has warned Sweden about the need to cut marginal tax rates in the form of a comprehensive tax reform (OECD, Economic Outlook, 2004). All the way up from 1970, the rate of marginal taxation of individual income had never been dropped below 50 percent. A typical employee living in Sweden is forced to contribute a relative fraction of his income to state, regional and local levels of government. This means that an employee in the highest tax bracket receives less than 30 SEK on each 100 SEK earned (Karlsson, 2005).

An extremely high level of corporate and wealth taxation could have a devastating economic impact. Venture capital and fresh investment funds could leave highly constrained business environment and move to investment locations with significantly smaller tax burden such as in Slovakia, Estonia or Ireland where the labor costs (per unit) and aggregate tax burden are significantly lower. High rates of corporate taxation threat long-term performance of the economy through the hampering of economic growth. And since there is no betterment without economic growth, expansionary fiscal policy is a major threat to competitive economy with outperformed economic growth rates. Sunesson (2005) found out that total wealth asset in the worth of 9 billion SEK is avoiding to pay the wealth tax rate of 1,5 percent. Bager-Sjögren and Klevmarken (1996) demonstrated the wealth mobility in the Swedish economy after the area of periodic tax cuts and accelerated deregulation of real estate sector. Their main finding was that the mobility of wealth strongly increased after the wealth taxation burden was reduced.
The ability of entrepreneurial sector to sustain relatively high rates of market growth is
constrained by high compliance costs, high marginal tax rates, high social security contributions and payroll tax. The amount of high tax burden indirectly affects growth potentials of entrepreneurial sector in their mission to trigger high market growth rates and future
strategic market expansion. Standard 25 percent VAT volumes 1 025 pages. A large panel of goods and services is taxed at lower VAT rates of 12 percent and 6 percent. Swedish high-tax jurisdiction has not yet eliminated double taxation. Thus, a successful enterprise with
excellent annual business results is obligated to pay a unique tax of 30 percent on the payment of dividends. After all, wealth tax occupies the enterprise with a tax rate of 1,5 percent exposed on 80 percent of net market value of stocks and shares. In general, a gradual shift to high tax rates supported the preferences of part-time employment and thus did not encourage further education and human capital investment to grow (Engström, Holmlund, 2006).

One of the lingering worries of tax rates had been significantly decreased and hardly noticeable economic growth. High taxes inevitably decreased the amount of tax revenues as the tax base slightly stagnated. This is admirable evidence that shows how effectively the Laffer Curve Rule works in practice. Another, more oftenly exposed worry, that Sweden faces today is an incredible rate of unemployment which grew right after the labor market started to become inflexible and thus supervised by restrictive government regulation. Official statistical rate of unemployment is equal to 8 percent but this is very far from the actual rate of joblessness. Sweden has had a long tradition of government-funded labor participation programs which are very broadly attended by unemployed. The participants are not statistically examined as unemployed despite not having a job. A compound of labor program participants, unemployed youth and officially unemployed yields an astounding 15-20 percent rate of real unemployment (Sianesi, 2001; Ibison, 2006; Silberstein, 2005). Unflattering characteristics extend to a wide range of structural indicators. Gross capital formation is one of the foremost indicators of legal and economic friendliness to businesses. Since 1990, the rate of gross capital formation has always been below 20 percent of the GDP. In increasingly competitive business environments, in Ireland for instance, the rate of gross capital formation exceeded 25 percent of the GDP in 2005 already (Larson, 2005) and there are advantageous tendencies of the increase in the upcoming period of dynamic global investment growth. Socialistically designed economic policies yielded a dangerous stimulation formula for capital flight – high tax rates on corporate and individual income, tight regulation, rigid and inflexible labor markets, difficult hiring and firing procedures, restrictive government intervention and vastly expansive fiscal policy. Such features forced many Swedish companies to retreat from Sweden and fly to more liberal places for doing business. The entire pharmaceutical industry escaped abroad. Pharmacia was acquired by Michigan-based UpJohn. Astra, once the jewel of big Swedish companies, was acquired by Zeneca. Research facilities were moved abroad while a fraction of high-tech companies maintains its operations in Sweden. In the mid-90s, VolvoCars was excluded from Volvo Corporation after having been acquired by Ford. SAAB, which was taken over by General Motors, built its own production plants in Belgium and Netherlands. IKEA escaped to much less tax burdened Switzerland. Even TetraPak left Sweden and built technological facilities in England. As a result of highly encumbered business environment, capital flight was more than obvious. Between 1993 and 2000, the emigration of young graduates increased by 48 percent. A sampled panel analysis of statistical data shows that “brain-drain” emigration accelerated seven times faster than the birth rate. Due to strong absence of very much needed human capital, Swedish economic growth was rachitic. According to ECB, the inefficiency of public sector is a serious structural problem. Fraser Institute’s Economic Freedom in the World shows that Sweden has the biggest public sector in the world as well as the least efficient one in Northern and Western Europe. Recent reactions have shown that there is no willingness to accelerate the privatization of public sector services such as health-care and social security. A long tradition of public sector’s privileges and tax revenue’s protection at the expense of Sweden’s global competitiveness and economic growth rate, has resulted in a government’s restrictive attitude toward private sector. Not even a single job in the private sector has been created since 1950 (Norberg, 2006).

According to international charts of economic liberty and competitiveness, Sweden is falling off the cliff. In 2006, Sweden was ranked 19th on the rank of economic freedom. In 2007, Sweden dropped to 21st place, being 72,6 percent free economy. According to Fraser’s Economic Freedom in the World, Sweden is ranked 24th on the scale of economic liberty. Thanks to efficiently managed monetary policy of low inflation, solid protection of property rights, sound contract enforcement, strong protection of investors, moderate commercial regulation standards and to a low level of black market activity (WB Doing Business 2006), Sweden still maintains the status of mostly free economy though there is still a long road for Sweden to become a free economy. Recent trends in economic performance have been interesting. Recent, comparably high rate of economic growth, has not been surprising. Swedish central bank, Riksbank, has been forced to raise the interest rate above the level of 2 percent which helped to stimulate the economic growth mostly at the expense of estate bubbles and household debt. Relative deregulation of the economy released the economic potentials and, thus, fostered the economic growth close to 5 percent. Low-price retailers recently entered the Swedish market. Increased competition led to a huge price reduction so that established retailers could continually rely on their customer basis. Lower prices and increased supply side lifted the consumption and thus empowered the economic growth. Money supply increased by 11,5 percent respectively so that the acceleration of inflation for a little bit, brought a certain amount of optimism among companies and market stakeholders, after the inflation rate had been one of the lowest in the Europe for years.

The definition of the Swedish model as the most successful one the world has ever known could hardly be justified on the ground of fatal welfare experiments. Early periods of peace, stability and neutrality brought a bulk of opportunities to Sweden. Years of non-conflicts foster the implementation of free market reforms based upon one the world’s lowest public consumption rates. Free market reforms empowered Swedish bright economic performance between 1860 and 1950 when Sweden had the 4th highest income per capita in the world, after the United States, Switzerland and Denmark. After 1950, Sweden went socialist and its future path
towards the “paradise of social democracy” had been a shrink rather than success. The economic recession had been stopped by the implementation of very much needed reforms by Mr. Carl Bildt and Mr. Ingvar Carlsson. Their structural reforms included the privatization, deregulation, liberalization and tax cuts. It is almost hilarious to defend the Swedish model on the basis of
high welfare, big government and high taxes. Early Swedish economic boom was consequently led by liberal economic reforms and by substantial entrepreneurial development which was exercised through the miracle of free market. Government non-intervention approach to business and social life was combined with intense development of human capital
infrastructure, and early research and patent development. If Sweden were the U.S. state it would emerge as fifth the poorest state (Bergstörm, Gidehåg, 2004) beyond the income per capita levels of Alabama and Oklahoma. Early economic and structural reforms were the key to the invigoration sustainable long-term economic growth. A high degree of economic freedom pursued a dynamic entrepreneurial road onward. Future periods of exploding socialism based upon expansive welfare spending robbed Swedes. The entrepreneurial sector was turned into the source of revenue for continually prolonged welfare spending and for one of the world’s public consumption rate in the advanced economies of the 20th century. Labor market came under restrictive government regulation while giving the privileged position to monopoly trade unions hampered further productivity growth. Economic policies of socialism resulted in a huge economic crisis as deep economic recession was on its way to reach the top of the edge. Welfare state has always been an excuse for undermined economic performance. Citing Murray Rothbard, I finish this post by sending a message to many who still believe in the myth of the welfare state – Welfare state is a warfare state.

Literature, Sources and Further Reading:

Daniel J. Mitchell, GÖran Normann; Pension Reform in Sweden: Lessons for American Policymakers, Backgrounder, The Heritage Foundation, 2006
http://www.heritage.org/Research/Taxes/upload/wm_1219.pdf

Anders Björklund, Tor Eriksson, Markus Jäntti, Oddbjörn Raaum, Eva Österbacka; Brother Correlations in Earnings in Denmark, Finland, Norway and Sweden Compared to theUnited States, IZA Discussion Paper Series, Forsuchungsinstitut zur Zukunft der Arbeit, 2000
http://ideas.repec.org/a/spr/jopoec/v15y2002i4p757-772.html

James Gwartney, Robert Lawson, William Easterly; Economic Freedom of the World,
2006 Annual Report, Fraser Institute, 2006
http://www.freetheworld.com/2006/EFW2006complete.pdf

Mårten Palme, Ingemar Svensson: Financial Implications of Income Security Reforms in Sweden, National Bureau of Economic Research, 2005
http://www.nber.org/books/intlSS-p3/sweden6-29-05.pdf

Thomas Andrén, Björn Gustafsson; Income Effects from Labor Market Training Programs
in Sweden During the 80’s And 90’s, Institute for Labor Policy Innovations, 2002 http://ideas.repec.org/p/hhs/ifauwp/2002_015.html

Lars Bager-Sjögren, Nils Anders Klevmarken; Inequality and Mobility of Wealth in Sweden 1983/84 - 1992/93, Uppsala University Department of Economics Working Paper Series, 1995 http://ideas.repec.org/p/fth/uppaal/21.html

Richard C. B. Johnsson; Economic Freedom in Sweden 1950-2002, The Ratio Institutet, 2004
http://ideas.repec.org/p/hhs/ratioi/0055.html

André Sapir, Philippe Aghion, Giuseppe Bertola, Martin Hellwig, Jean Pisani-Ferry, Dariusz Rosati, José Viñals, Helen Wallace; An Agenda for a Growing Europe -
Making the EU Economic System Deliver,
Report of an Independent High-Level Study Group
established on the initiative of the President of the European Commission, European Commission, 2003
http://www.euractiv.com/ndbtext/innovation/sapirreport.pdf

Sven R. Larson; The Swedish Tax System - Key Features and Lessons for Policy makers, Prosperitas, Vol. VI, Issue 2, Center for Freedom and Prosperity, 2006
http://www.freedomandprosperity.org/Papers/sweden/sweden.shtml

Sweden's Economic Performance; Recent Development, Current Priorities,
McKinsey&Company Executive Summary, McKinsey Global Institute, 2006
http://www.mckinsey.com/mgi/publications/sweden/

Per T. Ohlsson; Sweden - Still the Middle Way, A Talk Presented
at Columbia University in New York City, September 28, 2006

Per EngstrÖm, Bertil Holmlund; Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden, CES-IFO Working Paper No.1736, 2006
http://ideas.repec.org/p/hhs/uunewp/2006_012.html

Daniel J. Mitchell; Fiscal Policy Lessons from Europe, Heritage Backgrounder, The Heritage Foundation, 2006
http://www.heritage.org/research/budget/upload/bg_1979.pdf

Johnny Munkhammar; Don't copy the Nordic Model, A Speech held at Stefanik Institute in Bratislava, Slovakia, 2006
http://www.heritage.org/research/budget/upload/bg_1979.pdf

Fredrik Bergström, Robert Gidehag; EU versus USA, Timbro Institute, 2004
http://www.timbro.com/euvsusa/pdf/EU_vs_USA_English.pdf

Johan Norberg; In Defence of Global Capitalism, CATO Institute, 2003
http://www.johannorberg.net/?page=indefense

Johan Norberg; Swedish Models, National Interest, 2006
http://www.nationalinterest.org/Article.aspx?id=11488

Barbara Sianesi; An evaluation of the active labour market programmes in Sweden,
Institute of Labor Market Policy Evaluation, 2001
http://ideas.repec.org/p/hhs/ifauwp/2001_005.html

Johnny Munkhammar; Hot Swedish Models, TCS Daily, March 1, 2006
http://www.tcsdaily.com/article.aspx?id=030106D

Polly Toynbee; The most successful society the world has ever known, The Guardian, 10/25/2005
http://www.guardian.co.uk/Columnists/Column/0,,1599939,00.html

Johnny Munkhammar; Beyond the European Social Model, Open Europe, 2006
http://www.openeurope.org.uk/media-centre/pressrelease.aspx?pressreleaseid=14

Johnny Munkhammar; The Urgent Need for Labor Freedom in Europe—and the World,
2007 Index of Economic Freedom, The Heritage Foundation

Stefan M. I. Karlsson; The Sweden Myth, Mises Blog, 8/7/2006
http://www.mises.org/story/2259

2007 Index of Economic Freedom, The Heritage Foundation
http://www.heritage.org/research/features/index

INDEX OF ECONOMIC FREEDOM 2007

The newest Index of Economic Freedom has been published. The 2007 methodology has been revised to provide an even clearer picture of economic freedom by using data-driven equations rather than performance brackets which allows countries to be graded using a percent score rather than a 1–5 rating. In addition, labor freedom has been added as a variable.

Xavier Sala-i-Martin and Johnny Munkhammar have enriched the renewed index with astonishing articles about the importance of economic growth in a sustainable perspective of the worlds’ tomorrow.

This year's Index of Economic Freedom is a clear and simple message to stubborn defenders of the so called European social model which heavily relies on government intervention instead of implementing very seriously demanded free market reforms. The reason why mostly and moderately free European economies have failed on their exam from economic freedom is basically that when burdensome regulation is coupled with high tax rates and increasing government intervention in various aspects, then the economic freedom is very limited. Especially government intervention causes the decline of the economic freedom's level. Government intervention is seen through high taxes and economic and social policy of protectionism. Such policies are frequently justified on the basis of creating a better and safer tomorrow. Neither is accomplished when the government expands its role.

High tax rates on personal and corporate income distort productive behavior as well as high rates of taxation impair the ability of business sector to create new jobs and opportunities. Government intervention is the worst form of taxing work, saving and investment. There are of course several wheels of prosperity and economic freedom. The economic policy of successful and prosperous nations is streaming toward further liberalization of international trade. The removal of barriers and tariffs which impede the international trade is the greatest challenge to be met in the future. Protectionism in international trade is hidden behind the rhetoric of making jobs and markets safer while, in reality, policies based on protectionism prolong the agony of unemployment.

Politicians and many unsophisticated experts claim, for example, that labor market is a touching issue in the need of government intervention. The labor market is not truly unique as its critics suggest. Free market is a superior institution for labor yielding greater opportunities to increase the productivity and well-being of workers. Labor markets are often the most exploding experiment of government intervention. Left leaning governments tend to strongly intervene the labor market in order to improve its efficiency thereof. But stricter regulations yield exactly the opposite results. Without collected information, any kind of improvement in efficiency is made impossible.

Certain instruments of labor market interventions are usually given to politically privileged groups, mostly trade unions under the protection of government. But does the process of collective bargaining really yield sufficient results superior to individual choice and voluntary exchange? My answer is clear and simple: No, it does not. The core principle, upon which the free market is floating, is a free voluntary exchange between businesses and individuals seen through free price mechanism, free choice and free competition.

A dynamic feature of free markets is also their ability to unleash productivity and change much faster than under the regulatory government framework. Every day, entrepreneurs, designers and developers compete to satisfy their consumers. The result of the transmission of information and of spontaneous competition is the growth of output. No government regulation of entrepreneurial activity has produced neither a fraction of gains and benefits which have been achieved through competitive markets and the ability of individuals to choose freely. Results of free market have been thoroughly impressive.

In countries where free market reforms have firmly taken place, structural indicators of prosperity and progress have grown significantly. Between 1970 and 2003, the employment in the U.S. increased by 75 percent while in France, Italy and Germany, it increased by only 26 percent (Gersemann, 2004). Youth unemployment rates yields even more striking results. In Ireland and Netherlands, the youth unemployment rate is below 8 percent while in Greece, Italy, France, Sweden and Finland, the rate of youth unemployment was far above 20 percent. In the last decade, the dynamics of employment varied significantly among European states. In Ireland, Netherlands and Spain, the growth rate of employment was the highest while in Austria and Germany, the growth of employment was almost zero. The results show that freer markets substantially transformed in freer opportunities and choice in the market. Regulation of labor and business tripled its effect when the creation of new dynamic enterprises almost stopped. Together with the liberalization of labor market, lower tax rates created freer business environment and impressively improved quality of entrepreneurial framework.


Left-leaning policymakers often stress their care for the poor. But right after taking a closer look at the income structural, we see that those intentions are nothing else but a myth. In Sweden, the average growth of income between 1995 and 2004 was 29 percent. In the United Kingdom where labor market is much freer than in Sweden, between the same period, personal income grew by 72 percent in average. The message from this experience is: freer the market, freer the people. Policymakers in advanced as well as in certain developing economies often face severe difficulties when they try to implement free market reforms. The main source of objection to free market reforms is hidden within particular interest groups. They are simply afraid of economic growth and cutting politically granted privileges. Youth is oftenly the main voice of opposition to free market reforms.

In Slovenia (the country where I live), anti-capitalist youth marched against economic and education reforms. High tax rates make hiring and firing more expensive. As fewer can afford to hire, the desire to work strongly decreases. Many unsophisticated experts and critics suggest that minimum wage is a solution to the problem. It is not. Minimum wage, wage subsidies and collective bargaining cause the unemployment of low productivity workers. As trade unions fanatically struggle to keep their jobs, they prevent them from having an opportunity to re-educate and thus easily avoid the threat of being unemployed. As a result of union monopolies, extensive welfare and social security programs have occurred but it seems that politicians don't want to recognize that the existence of such programs will become unsustainable in the future as positive demographic trends will quickly disappear. Instead of deregulating labor market and making work incentives far more profitable than unemployment benefits, policymakers in mostly and moderately free countries are keeping regulation as well as they talk about different kinds of duty and legal discipline. This is a threat to economic freedom as well as it is a threat to the survival in the future.

The findings of this year's Index of Economic Freedom surprise many experts, economists, individuals, businesses and policymakers around the globe. Anglo-Saxon economies once again emerged as "free". This is a sign of being mature enough to graduate from economic freedom. Despite being congratulated by many, there is no Nordic country among free economies. Denmark and Iceland are economically the freest, and also the smallest, competitors from the North. This year's Index of Economic Freedom is a warning signal to Slovenia, the country in which I live. Strong government intervention, rigid labor markets and disrespectful protection of private property are the main ingredients of Slovenia's disastrous position on the scale of economic freedom. Inflexible employment regulations retard productivity growth. In Slovenia, labor freedom is virtually non-existent. The pursuit of privatization is very slow as the government effectively dominates the two largest bank and life insurance provider.

It is somehow hard to understand why such a small as Slovenia rampantly ruins its future potentials and real comparative advantages consistently through the lack of economic freedom.

CHINA AND THE FLAT TAX OF 25%

The Business reports that China is moving rapidly forward towards the radical tax reform based on the adoption of the flat tax of 25% on personal and corporate income. Advantages of the flat tax have been extensively stressed by Mr. Alvin Rabushka in one of his recent research papers - The Flat Tax in Russia and the New Europe. Rapidly growing economies in Eastern Europe and Russia have adopted pro-growth flat tax rates. Individuals, companies and the whole economy have vastly benefited from the radical tax reform. China is now achieving high rates of economic growth. The vastness of the market, the price of the labor, good channels of global logistics and the opportunity to yield high returns have been the main components of foreign direct participation. Through the exercise of international openness, Chinese market has attracted numerous global investment projects. As the largest growing economy in the world, China is now facing a growing need to adopt the policy of tax competition in order release its economic potentials and thus evenly higher economic growth which is the main channel of the international competitiveness. Sound tax policy is a good sign of economic recovery and progress. Further steps toward liberalization of the economic system are vastly needed. Increased flows of labor and investment capital could bring positive effects to Chinese economy in the long-run as well as a decreasing role of government must come into action. Flat tax will have an important effect on the tax jurisdicition itself. Flat tax textbooks provide a decent and stimulataneous economic policy. Many of those textbooks have recently been translated into Chinese.

In order to improve the economic survey of Chinese economy, competitive domestic markets are needed to take its place and give the best of their ability to pursue an improved economic performance. I warmly welcome the aims of Chinese policymakers who seem to recognize the importance of competitive tax agenda for a long-run economic performance. The adoption of a tax policy with low tax rates will not result in a decline of total tax revenues. In the case of Russian radical tax reform, tax revenues increased dramatically since the flat tax was successfully implemented. In 2001, total revenues were 28 percent higher, in 2002, the share of increase collected revenues was 54,5% higher while in 2003 personal income tax revenues grew amazingly by 80,1%. Of course, many other policy features are still needed to improve the competitiveness of the Chinese economy in the global arena. The economic miracle of Eastern European economies is a nice example of how a simple, transparent and efficient tax framework results in the accelerated pace of economic growth. And the flat tax is an excellent step in that particular direction.

ECONOMIC PERFORMANCE IN EUROPE

By introducing the flat tax, Macedonia stepped ahead of its regional and global competitors and thus increased its astonishing potentials of creating a value of economic boom exercised through low tax rates on personal and corporate income and greater trade and investment openness.

OECD has published an Economic Survey of the Euro Area 2007. Detailed findings of the survey clearly reflect the reality of economic policy in many high-tax countries in Western Europe. Politicians in this part of the world often blame Euro for the lack of economic performance though this is far beyond the real truth. The most obvious reason why the competitiveness of European economies is slightly falling is an enormous amount of tax wedge coupled with a growing regulation burden, poor investment conditions and rigid labor markets. Labor market reforms seem to be unpopular since governments in Western and Central Europe are tolerating the monopoly position of trade unions which is exercised through a devastating process of collective bargaining.

Switzerland continues to benefit from astute tax policy based upon tax competition among Swiss cantons. Low corporate tax rates and high value of business environment promote the creation of new jobs. Switzerland has both, advantageous tax regime and smooth infrastructure. Companies that draw away from business places with high-tax pressures, are finding it easier to pursue lower costs of labor, management and transportation as well. In Zurich, the normal range of corporation tax is between 15 per cent and 24 per cent but foreign holding companies using Zurich as an administrative base are exempt from tax on their non-Swiss earnings. Vigrously supported tax competition enables cantons to compete in a similar way in which global economies do. The cantons have the greatest spending burden and the biggest scope to compete for international dollars and tax rates vary. Some of the lowest rates found in mountain regions, such as Zug and Schwyz, which have attracted a number of large and tax-shy corporations, such as Xstrata, the mining group

There is still a bulk of economic lunacy in France. When Johnny Hallday left France, after being fed up with high taxes, the supporters of a socialist presidential candidate Segolene Royal accused Hallday of treachery. They also called for a European action against "banditry" of Swiss tax competition. But Jacques Chirac surprised everyone when he said that France must reduce its corporate tax rate from 33 to 20 percent within five years, if it wants to retain a decent level of competitiveness in global economy.

HOW TO UNDERSTAND NORDIC MODELS?

Johnny Munkhammar gives us an astonishing answer to this particular question. Read here.

RECOMMENDED READING LIST

If you don't know how to fill the gap of your free time then you just came across the place at a very suitable moment. Below you can find reading suggestions of some of the most attractive far the most interesting books according to my opinion.

Borut Prah, former IBM Executive, wrote a masterpiece entitled The Party is Over: A Compilation of the Complete Accomplishments of Communism. You can also get the book from Amazon. In this excellent writing you will see how miserable the accomplishment of communism have really been. For example, in Chapter 4, Mr. Prah points out;
"Many years before the transistor was invented, Karl Marx declared and Lenin confirmed that dialectic materialism does not allow uncertainty to exist. Soon after they both died, another Karl, a German physicist named Werner Karl Heisenberg, discovered the Principle of Uncertainty. But, in the Soviet Union, certainty and the Five Year Plan rule. For uncertainty you get vacations without pay in Siberia. The Party or Politbureau cannot do otherwise. (For how this came about, read the following chapter, Mendeleyev, Lenin, Kapitsa, and Heisenberg.) Thirty years later in the United States, the Principle of Uncertainty leads to the discovery of the transistor. Being completely outside of the Soviet Five Year Plan makes a transistor radio immediately politically undesirable and on par with Coca Cola and Wall Street. Moscow stuck to Marx and Lenin: to be politically desirable it must be certain and real, such as, for example, a potato. Thus, the politically correct Marxist approach to the radio is to stick a pair of earphones in a potato and listen. The device indeed works and it predates the Walkman by forty years. But potato chips are found useless. So far, so good for the Party."

Going further, Mark Steyn offers us a productive reading entitled America Alone; Why America will have to fight alone in the battle for Western civilization. The book is also availble to be purchased. In his Deliver us from Evil, Sean Hannity, reveals the cause of the world ills. The book is recommended to anyone who still doubts about the neccesity for fighting against global forms of extremism. His first book, a New York Times Bestseller, Let Freedom Ring, is equipped with straight-forward pursuit of excellence and dedicated principles of liberty as well. This book is a powerful tool for slashing socialist view and bringing them to justice. In fact, there are many issues for which socialists (neo-marxists) should be responsible for. Progressive taxation (a legislatively coded form of stealing) is one of the issues, disrespectful attitude towards private property is another issue.

Nice and reader-friendly reading for the weekend that perhaps suits your interest is a book written by an Austrian economist Ludwig von Mises entitled Marxism Unmasked: From Delusion to Destruction. This book does not include empirical studies but it rather focuses on discussing the lies hidden behind carefully designed rethorics of Marxist ideology. Emotionally triggering and extremely devastiting Marxist thought is truthfully noted in Mises's Free Market and Its Enemies.

Libertarian Reading List also brings up books on libertarian topics.

In the field of economics and business there is a bulk of innovations as well as a large quantity of older, but extremely thoughtful books. One of those books is Warren Buffet's Lessons for Corporate America. In order to try to find successful message for your future I recommend you to read Why We Want to Be Rich - Two Men, One Message written by Donald Trump and Robert T. Kiyosaki. Thoroughly noted guidelines for the future are written in another book by Donald Trump - The Way to Success.

David A. Lax and James K. Sebenius wrote 3-D Negotiation : Powerful Tools to Change the Game In Your Most Important Deals. This book can serve as a useful tool in determining your negotiating position in the game with an aim to use the strategy called 'win-the-deal'.

Rogelio Oliva and Noel H. Watson published a working paper entitled Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning, studying organizational dimensions of forecast generation and improvement.

My favorite field - economics - has also been lightly enriched with generous literature, working papers and case studies. Tarun Khanna briefly wrote about India's need to increase trade volumes with China, showing how both sides (could) benefit from free trade agreements and through liberalized investment conditions. The paper is simply entitled India Needs to Encourage Trade With China. Julia Hanna and Toby Stuart write about the so-called money connection through which we understand the nature of VC firms operations. Mark de Broek and Throsten Slok wrote a working paper Interpreting Exchange Rate Movements in Transition Countries. This paper appears to be old but it's very useful in taking transitional economic behavior seriously. Lars Feldt and Emmanuelle Reulier wrote an extensive study on Strategic Tax Competition: Evidence from a Panel of the Swiss Cantons. Michael Keen, Yitae Kim and Ricardo Varsano of the International Monetary Fund wrote evidentially principled study on the flat tax effects in Eastern Europe. I warmly recommend anyone who's interested in this topic, to read the paper (50 pages) to furtherly understand the need for the fundamental tax reform in a direction of flat-rated taxes (see: related paper written Nancy Stokey and Sergio Rebello) though personal views of the authors are different. In the field of international economic issues and economic development, a thorough analysis and suggestion has come up, putting up neccessary solutions to let Africa drive on the path of prosperity. It's a Heritage Lecture under the authorship of Brett Schaefer. The paper is entitled Economic Freedom: The Path to African Prosperity. Michael Keen, Anna Ivanova and Alexander Klemm extensively wrote on the topic of Russian tax reform's impact after Russia had dramatically reduced personal income tax rates.

The foremost thorough analysis about fiscal expansion in Europe has been written by Dan Mitchell of Heritage Foundation in his paper Fiscal Policy Lessons from Europe. This is a paper with high priority on the list so in accordance with free choice, I recommend you to go through this paper and once again view the economic misery of Europe.