Wednesday, October 13, 2004
New Nobelist in economics says Bush didn't cut taxes enough -- and France should really cut taxes.
"Edward Prescott, who just won the Nobel Prize for Economics, has said President George W. Bush's tax rate cuts were 'pretty small' and should have been bigger...Prescott's analysis says that large increases in European tax rates have reduced employment and hours worked there, and thus have reduced national income and the ability to pay future entitlement benefits (which are even larger than those promised in the US).
"'What Bush has done has been not very big, it's pretty small,' Prescott told CNBC financial news television. 'Tax rates were not cut enough' he said..." (AFP)
As Bruce Bartlett has noted...
[A study] by Edward Prescott of the Federal Reserve Bank of Minneapolis... says that Europe's higher taxes explain almost all the difference in labor-force participation rates between Europe and here. He notes that when European tax levels were comparable to those here, work hours were similar. But as Europe's taxes have risen, workers responded by working less.I'll be looking forward to Krugman noting this in his congratulatory column to Prescott in the Times. ;-)
Consequently, tax cuts in Europe would raise labor supplies, increase output, and raise the standard of living.
For example, if France reduced its tax burden from 60 percent of GDP to 40 percent, the average Frenchman would be able to consume 19 percent more over his lifetime than he does now. This is a very large impact... [study .pdf]