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Wednesday, March 23, 2005
Response to Martin Wolf

At first sight, Martin Wolf's case in today's Financial Times that 'More public spending does not lead to slower growth' appears very conclusive. The graph is clear and the use of OECD figures makes it seem impeccable. However, I will not be giving up the battle for lower taxes.

First of all, it seems unusual to plot a single year's government spending/GDP figures against an average of a decade's growth and output figures, as Martin Wolf did. I would be interested to see figures which compared like with like, a year to a year or a decade to a decade.

Secondly, a recent study from the OECD found that every percentage point increase in taxes as a share of GDP reduces per capita output levels by between 0.3% and 0.6%. And a recent UK Economic Outlook report (February 2003) by PricewaterhouseCoopers, found that every 1 percentage point of GDP increase in distortionary taxation reduces economic growth by between 0.2 and 0.4 points a year. Perhaps Martin Wolf will give us his views on these papers in a future article.

Posted by Matthew Elliott | Permanent Link

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