From: Anders Sandberg (asa@nada.kth.se)
Date: Sun Jul 07 2002 - 19:27:21 MDT
On Sun, Jul 07, 2002 at 12:33:44PM -0700, Olga Bourlin wrote:
> From: "Mike Lorrey" <mlorrey@datamann.com>
> > That's right: taxes cause poverty.
>
> And to corroborate your point, you could have pointed to some factual data
> to prove how hardly anyone in the USA - back in those idyllic days before
> taxation reared its ugly head - was poor. But you didn't.
Here is some data. Methodology is of course a bit iffy, and I'm not an
econometrist (I just play one on sunday nights :-). The results were
a bit surprising to me.
I took the Heritage foundation index of economic freedom
(http://www.heritage.org/index/), GDP per capita and GDP real growth
rate (the later two from CIA world factbook) and looked at the
correlations. Some nations with no or incomplete data (such as
Afghanistan) were left out.
First, by ploting GDP per capita vs. growth rate we see that there is no
firm correlation (r=0.08) - there is a mean 4.2% growth, and richer
nations do not on average grow much faster than poorer nations.
http://akira.nada.kth.se/~asa/Freedom/growthgdp.gif
The correlation matrix of the normalized data (all variables normalized
to the interval [0,1]) shows some interesting correlations.
http://akira.nada.kth.se/~asa/Freedom/correldata.gif
GDP has a negative correlation with all the freedom factors but the
fiscal burden factor; that is, the higher the index (more unfree
market), on average the exonomy is weaker. Especially high levels of
black markets, much regulation, lack of property rights/working judical
system and lack of trade are linked with a low GDP.
http://akira.nada.kth.se/~asa/Freedom/gdpcapfreeind.gif
The growth rate was not as strongly correlated with economic freedom,
with the single exception of fiscal policy. Higher taxes, slower growth
(although the correlation was only -0.177 - there are many other factors
at work here).
There is an interesting cluster of strongly correlated factors in the
lower right corner of the correlation matrix: property rights,
regulation and black markets. Bad legal systems, too much regulation and
corruption/black markets go hand in hand. Sounds very much like what de
Soto has described.
Overall most measures of economic freedom are strongly correlated, with
the exception of fiscal policy. There is a block of foreign investment,
banking freedom and price level that is especially linked to the
previous property rights/regulation/black market block.
http://akira.nada.kth.se/~asa/Freedom/correldatafreedom.gif
I also experimented by adding the Freedom House's
(http://www.freedomhouse.org/research/index.htm) annual world freedom
indexes. The political rights and civil liberties scores were highly
correlated with each other (0.92), and also strongly correlated with the
economic freedoms (0.65 and 0.71 respectively with the overall economic
freedom score).
It would be nice to look at the time course here - these freedom indexes
cover several years, and by comparing them with economic development I
am sure an even clearer picture will emerge. Another factor that it
would be healthy to include is press freedom (and I would love to
correlate all these with happiness indices), but I will leave that to
another night.
To sum up, taxes do not make you poor - they make your economy grow more
slowly. What really makes you poor is lack of freedom.
-- ----------------------------------------------------------------------- Anders Sandberg Towards Ascension! asa@nada.kth.se http://www.nada.kth.se/~asa/ GCS/M/S/O d++ -p+ c++++ !l u+ e++ m++ s+/+ n--- h+/* f+ g+ w++ t+ r+ !y
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