There is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. “It’s actually quite hard to say how tax policy affects the economy,” says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world’s highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.


You can’t blame all of Estonia’s problems on its low taxes, of course — the currency issue (Norway’s kroner is floating, while Estonia just joined the euro) is also huge. And Norway does have all that oil revenue, too. But looking at Estonia’s housing bubble and bust, one sees an economy where people are striving to get rich quick, in contrast to Norway’s culture of simply trying to be as happy and successful as possible. Which turns out to be extremely successful.

If you'd like to help CJR and win a chance at one of 10 free print subscriptions, take a brief survey for us here.

Felix Salmon is an Audit contributor. He's also the finance blogger for Reuters; this post can also be found at Reuters.com.