Taxes on the rich and economic growth

A very interesting paper on "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities" by Piketty et al. argues that:

"There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implying that the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed."

which in plain English means that (i) cuts in personal taxes in the past thirty years have led to higher income inequality without accelerating economic growth and that (ii) higher personal taxes might not necessarily stymie growth.

Controversial, no?

New books read recently

Ranked from * (boring) to *** (smashing):

1. The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin **
2. Confidence Men: Wall Street, Washington, and the Education of a President by Ron Suskind ***
3. God is not Great by Christopher Hitchens***
4. Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy by Martin Lindstrom ***

TIGER seminar on Doing Business in Poland

On December 14, 2011, I delivered a presentation on "Doing Business in Poland" within the TIGER Seminar Series.

Conference "The World and Europe in 2030"

I gave a speech on "The Inexorable Rise of Chimerica and its Implications for the Global Economic Order" as part of a conference organized by TIGER on December 8, 2011 within an EU-funded project AUGUR.

The background paper is available here. An updated paper will be available online soon.

Misleading information in the media on EU tax harmonization (in Polish)

I have just read an article in the Polish Gazeta Wyborcza on "Takie same stawki podatków w Unii? Zbyteczne" (The same tax rates in the EU? Not needed), which provides a sweet example of media misinformation.

First, the title of the article is not congruent with its content: one of the surveyed economists (in fact, Dr Ozog is not an economist, but a tax lawyer) is in favor of harmonizing tax bases within the EU and introducing a range of tax rates for CIT, ie a minimum and a maximum tax rate allowed. This is as close to tax harmonization as it can possibly get, short of having the same CIT rate for everyone.

Second, the way the article is written makes it really hard to understand Ozog's views: it first says that she is against one CIT rate for everyone, but then at the end adds that "it could be useful to think about introducing ranges", which goes against the main message coming from the text. Readers are left believing that there is something wrong with harmonizing taxes.

Third and finally, the article only asks for opinion two selected economists, without trying to talk to someone, who has strong arguments in favor of tax harmonization. Biased selection biases the results.

On the whole, the title of the article should have read something like "Tax Harmonization in Europe? A qualified yes for harmonizing bases and minimum tax rates", which would have fit the content much better. Otherwise, it is a great article!:-)

A remarkable speech by the Polish MFA Radek Sikorski in Berlin

Radek Sikorski's speech in Berlin is a bombshell - I have hardly read anything more powerful ever before coming from a Polish Minister of Foreign Affairs or a Polish policy maker. This is a true tour de force, which is likely to earn its place in the Polish and European history.

I agree with Sikorski's whole message, except on taxes, which I believe--like in most other areas--should also be harmonized within the EU.

"2021: The New Europe" by Niall Ferguson

Niall Ferguson, my favorite historican, peers into the future of Europe, now in its critical moment.

The bottom line: the euro is still circulating, the euro zone is replaced by the United States of Europe, UK is no longer in the EU, unlike Poland, which stayed and adopted the euro (and is led by Prime Minister Radek Sikorski), with the accession of the six remaining former Yugoslav states—Bosnia, Croatia, Kosovo, Macedonia, Montenegro and Serbia—total membership in the U.S.E. rose to 28 (29 with the separation of Flanders and Wallonia); in 2021 the euro is being used by more countries than before the crisis.