Archive for May, 2011

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UK healthcare reform

Tuesday, May 31st, 2011

UK healthcare reform is not going well. FT columnist Philip Stephens explains.

[The UK Prime Minister, David] Cameron has held up a personal devotion to the NHS as testimony to the modern, moderate Conservative party. Margaret Thatcher thought people with enough money should “go private” when they fell ill. Mr Cameron resolved to show himself a Tory centrist by exempting the NHS from the worst of spending cuts.

And now? …. Confused voters suspect a Tory plot to break up and, worse, privatise, the nation’s most cherished public institution.

The prime minister is not helped by the fact that the most vocal cheerleaders for … [the reform] hail from the Thatcherite wing of his party. ….

The health secretary [Andrew Lansley] has never explained what problem he wanted to solve by handing most of the budget to GPs, by fragmenting decision-making and encouraging a competitive free-for-all. On his part, Mr Cameron is entirely unconvincing when he presents a binary choice between these changes and stasis. Voters are not stupid. ….

Mr Cameron likes to think of himself as a decisive leader. Well, it is time to be decisive. And, you never know, by throwing overboard one ill-judged plan, the prime minister might recover some of the political credit he needs to modernise the rest of Britain’s welfare state.

Philip Stephens, “UK health fiasco is becoming contagious“, Financial Times, 31 May 2011.

Elsewhere, the Financial Times reports that many private nursing homes in the UK are in crisis, often “the result of misguided property deals to fund rapid expansion”. Private owners account for 70% of the sector, which was privatised 20 years ago.

Britain’s care homes face a deepening crisis as some private-sector companies that piled into the sector struggle with their financial miscalculations amid fresh evidence that they provide worse quality care than their non-profit rivals. ….

An investigation by the Financial Times has shown that the quality of care in one in seven privately run homes in England was rated “poor” or “adequate” by the government regulator. The low ratings indicate potentially serious problems such as a failure adequately to feed or clean residents.

By contrast, the low ratings applied to one in 11 homes run by non-profit organisations or local authorities, based on April 2010 ratings from the regulator, the Care Quality Commission ….

[T]he CQC, hit by its own financial constraints, reduced inspections by 70 per cent in the six months to March this year compared with the previous six months. …. [F]rom October 2010 to December 2010 its enforcement activity in effect came to a halt.

Sarah O’Connor and Cynthia O’Murchu, “Britain’s private care faces crisis“, Financial Times, 31 May 2011.

Could this dismal outcome be the result of inadequate finance (fiscal austerity) rather than privatisation per se? After all, one in 11 publicly managed homes are rated “poor” or “inadequate”. This result is better than for privately run homes, but suggests room for improvement. The authors add, near the end of the news story, the following information: “Private care home operators also say local authorities pay them unreasonably low fees and spend much more on local authority owned homes.” The assertion was unfortunately not verified.

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old age pensions and longevity

Monday, May 30th, 2011

The current issue of The Economic Journal has an article on “the effect of pensions on longevity” by Tilburg University economist Martin Salm (born 1974).

This study uses changes in pension laws for Union Army veterans as a natural experiment to estimate the causal effect of pensions on longevity, and to examine potential pathways underlying such a relationship. I examine the effects of the pension laws of 1907 and 1912, which granted old-age pensions to Union Army veterans. Veteran pensions reduced age-adjusted mortality by 11.5% for law of 1907 pensions and by 29.6% for law of 1912 pensions. Pensions reduced mortality for both acute and non-acute causes of death but reductions in mortality were strongest for mortality from infectious diseases. ….

The main policy conclusion of my findings is that government transfers such as veteran pensions can not only improve the quality of life for beneficiaries but can also substantially extend their length of life. This relationship was already suspected by contemporaries. In 1889, General M. Trumball speculated that ‘nothing increases longevity like a pension’.

Martin Salm, “The Effect of Pensions on Longevity: Evidence from Union Army Veterans”, The Economic Journal 121 (May 2011), pp. 595-619.

Pensions for Civil War veterans were the first pensions ever implemented on a large scale in the United States. From 1907, the pensions went to all veterans, not just the disabled, and “were generous by the standards of their time”.

Researchers working with Canadian data found similar, but smaller, mortality effects from implementation of universal age pensions. They interpreted this as evidence that universal pensions improve the well-being of the elderly. The pensions of Mr Salm’s study are also universal, in the sense that all Union Army veterans aged 62+ received them. They are generous, however, compared to Canada’s universal pensions; this might explain their greater impact on mortality.

An ungated, earlier version of Salm’s paper is available here.

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healthcare expenditures and inflation

Sunday, May 29th, 2011

Physician and journalist Atul Gawande (born 1965) spoke about US healthcare costs when he delivered the commencement address to this year’s graduates of Harvard Medical School.

Medical performance tends to follow a bell curve, with a wide gap between the best and the worst results for a given condition, depending on where people go for care. The costs follow a bell curve, as well, varying for similar patients by thirty to fifty per cent. But the interesting thing is: the curves do not match. The places that get the best results are not the most expensive places. Indeed, many are among the least expensive. This means there is hope—for if the best results required the highest costs, then rationing care would be the only choice. Instead, however, we can look to the top performers—the positive deviants—to understand how to provide what society most needs: better care at lower cost.

Atul Gawande, “Cowboys and Pit Crews“, News Desk blog, The New Yorker, 26 May 2011.

Dr Gawande is a frequent (though passive!) contributor to thought du jour.  He is referring to measurement of costs at a point in time, but at different locations. This is done by comparing costs of standard procedures, such as normal childbirth, hip replacement, coronary bypass surgery, et cetera. Measuring changes in costs over time – price inflation – is generally thought to be much more difficult. Via Mark Thoma, here is a quote from an interview of Rochester University economist Mark Bils (born 1958), who studies “the intricacies of price measurement”.

When you look at healthcare expenditures, you see that inflation is extremely rapid, much more rapid than other inflation rates. But we have no idea what the inflation rates for health expenditures really are. We don’t know! You can’t measure quality of healthcare very well.

If I compare healthcare costs today versus in the year 1800, well, I could go out and buy a bunch of leeches today for almost nothing. And I could have the healthcare I had in 1800. If you had a certain condition and you had $10,000 to get treated at today’s health prices, or $10,000 to get treated at 1960s prices with 1960s technology, I don’t think it’s so obvious that people would want to go back in time to get their important health conditions dealt with. In that sense, you say, I don’t know if there’s inflation. It’s pretty hard to say that there’s been a lot of inflation over the long haul in healthcare.

Brent Meyer, “Interview with Mark Bils“, Forefront (Federal Reserve Bank of Cleveland), Spring 2011.

My favourite paper on this subject is an essay that Brookings economist Jack Triplett wrote, with the provocative title “Human Repair and Car Repair”. Triplett believes that measuring the real output of health care is conceptually not so difficult. The main problem is that statistical agencies devote few resources to this task.

Why is measuring health care output so hard? The medical economics literature contains a long list of intimidating and discouraging difficulties. In this paper, I propose to cut through this mostly defeatist list by posing what at first might seem a narrowly-focussed question: Why is health care different from any other analogous service, such as car repair? ….

Jack E. Triplett, “What’S Different About Health? Human Repair and Car Repair In National Accounts and in National Health Accounts“, Brookings Institute, 25 June 1999.

This is a long paper, well written, difficult to summarize, and worth reading. It was published as the first chapter (pp. 15-94) of Medical Care Output and Productivity, edited by David Cutler and Ernst Berndt (University of Chicago Press for the NBER, 2001).

Triplett recently wrote another, shorter essay for The Oxford Handbook of Health Economics.

[P]roductivity in the medical care sector has behaved very differently from other industries, even other services industries: Measured productivity growth in medical care has typically been negative. ….

Few industries have experienced more innovation, so medical care’s negative productivity growth is highly suspect. …. Data on inputs and outputs—indeed, economic data generally—for the health care sector are much less well developed than for many other sectors of the economy, which is bizarre considering the size of health care in most industrialized countries and the importance of the sector. ….

The National Health Accounts produced in many countries have become nearly irrelevant to the current policy debates on medical care costs because they show only who provides the money for health care (consumers, governments, insurance companies) and who gets it (hospitals, doctors, pharmaceutical companies). They do not show what is bought for health care expenditures—treatments for disease. ….

If expenditure growth is contained, is the effect to reduce medical care inflation? Or is it, instead, to reduce the growth of medical care services? We don’t really know. Only after determining this can we move to the next stage and ask whether the growth in the number of medical care services is worth it, a question that has too often been “answered” with a minimal amount of relevant data.

Improving the database for the analysis of medical care productivity deserves high priority. It deserves high priority, not so much because productivity analysis is necessarily that important, but because vital questions of health care policy demand exactly the same data.

Jack E. Triplett, “Health System Productivity“, ch 31 of The Oxford Handbook of Health Economics, edited by Sherry Glied and Peter C. Smith (Oxford University Press, 2011).

This is an excellent paper, but very concise. The link is to a November 2009 draft. I recommend reading it as an update to Tripett’s earlier paper.

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Martin Wolf interviews Francis Fukuyama

Saturday, May 28th, 2011

This morning the Financial Times serves us a rare treat: FT chief economics commentator Martin Wolf (born 1946) in conversation with political scientist Francis Fukuyama (born 1952). Here are some highlights.

Fukuyama is best known for his book The End of History and the Last Man (1992) in which he stated that liberal democracy was the only way to run a modern state. I get the impression that his support for democracy is now much more conditional than he thought then.

He says: “The way I feel right now is that it’s an open question which system is going to do better in the next while – a high quality authoritarian one or a deadlocked, paralysed, democratic one, with lots of checks and balances? Over the long run, it will be easier to sustain a system with checks and balances, precisely because the checks and balances permit adaptation. You can get rid of a bad leader.” ….

I note that the west increasingly has the inverse of the traditional Chinese view of intellectual authority. On many subjects – climate change, for example – we think the views of the vast mass of the people count for more than the weight of scientific opinion. Authority counts for almost nothing.

He agrees. “That’s actually a big problem in western public administration because I think good governance is a kind of aristocratic phenomenon. …. The disease has gone furthest in the United States.”  ….

[He explains.] “…. The Tea Party comes out of this tradition, started by Andrew Jackson. Andrew Jackson gets elected in 1828. He says, ‘We won the election, why should we let these elites run the country?’ You get the modern echoes of this with Sarah Palin, who is popular precisely because she didn’t go to Harvard, and she’s up against a president who did go to Harvard. Every single European country, including all of these squeaky clean Scandinavian ones, now have rightwing populist parties.” ….

Barack Obama is a reasonable, rational, low-key sort of human being, I suggest, about as good as you could hope for. But, I say, it’s not difficult to imagine somebody coming to power – particularly if the economy doesn’t recover very well, which is quite likely – with a very different agenda.

“That’s right”, he says. “But I do think Obama’s going to get re-elected.”

Martin Wolf, “Lunch with the FT: Francis Fukuyama“, Financial Times, 28 May 2011.

Francis Fukuyama until last year was Professor of International Political Economy at Johns Hopkins University. He is now Senior Fellow at Stanford’s Freeman Spogli Institute for International Studies. Much of the full interview focuses on Fukuyama’s new book, The Origins of Political Order. The first volume, published last month, covers From Prehuman Times to the French Revolution. A second volume will continue the narrative to the present day.

There is more Fukuyama here and here and here.

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the Greek financial crisis

Friday, May 27th, 2011

It is clear that Greece is on a path to default on (‘restructuring of’) its sovereign debt, despite denials by the Greek government, the European Commission, the International Monetary Fund (IMF) and the European Central Bank. The ECB’s former chief economist speaks with candor, however, and does not deny what is now obvious to everyone.

Greece is “not just illiquid, it is insolvent,” Otmar Issing, the European Central Bank’s former chief economist, declared at a press conference in Copenhagen today – thus contradicting completely the ECB’s official position. There were serious doubts about whether it would ever honour its debt obligations, Mr Issing added.

His comments  will no doubt be seen as unhelpful in Frankfurt. Mr Issing, 75, still commands much respect in central bank circles and, as a former Bundesbanker, was the intellectual heart of the ECB from its creation in 1998 until he stepped down in 2006. His comments will fuel financial market speculation that a Greek debt scheduling is inevitable, whatever the ECB says.

Ralph Atkins, “Issing says Greece ‘insolvent’“, Money Supply (FT blog), 26 May 2011.

Ralph Atkins is bureau chief for the Financial Times in Frankfurt am Main.

Harvard economist Martin Feldstein agrees that Greece is insolvent. Feldstein goes further, however, arguing that a massive default, even combined with fiscal austerity, will not solve the Greek crisis. The problem is that Greece also faces the challenge of prices and wages that are out of line with those of its trading partners. This lack of competitiveness shows up as a trade deficit equal to “more than 4% of its GDP, the largest trade deficit among eurozone member countries”.

Eliminating or reducing this trade gap without depressing economic activity and employment in Greece requires that the country export more and import less. That, in turn, requires making Greek goods and services more competitive relative to those of the country’s trading partners. A country with a flexible currency can achieve that by allowing the exchange rate to depreciate. But Greece’s membership in the eurozone makes that impossible.

So Greece faces the difficult task of lowering the prices of its goods and services relative to those in other countries by other means, namely a large cut in the wages and salaries of Greek private-sector employees. ….

Ever since the Greek crisis began, the country has shown that it cannot solve its problems as the IMF and the European Commission had hoped. The countries that faced similar problems in other parts of the world always combined fiscal contractions with currency devaluations, which membership in a monetary union rules out.

A temporary leave of absence from the eurozone would allow Greece to achieve a price-level decline relative to other eurozone countries, and would make it easier to adjust the relative price level if Greek wages cannot be limited. The Maastricht treaty explicitly prohibits a eurozone country from leaving the euro, but says nothing about a temporary leave of absence (and therefore doesn’t prohibit one). It is time for Greece, other eurozone members, and the European Commission to start thinking seriously about that option.

Martin Feldstein, “After the Greek Default“, Project Syndicate, 26 May 2011.

It is now abundantly clear that Greece should never have been allowed into the eurozone. But leaving the currency union is regarded as unthinkable, as this would trigger a massive run on Greek banks. Will the trick of a “temporary leave of absence” work? I suspect not, but the situation is so bad that no option should be ruled out.

I have never fully understood why workers and their unions resist cuts in nominal wages, yet easily accept cuts in real wages via currency devaluation. Part of the reason is no doubt the fact that many (not all) expenses of workers are contractual obligations that are fixed in local currency. This includes the rent and mortgage payments for housing, as well as property taxes, tuition fees and private debt. Would it not be possible for Greece to achieve an internal devaluation by sharply reducing – in a single stroke – the nominal values (in euros) of tuition, wages, rental payments, and all debts, public and private? Would this be acceptable to workers? This is just a thought … another option.

Martin Feldstein (born 1939) chaired President Ronald Reagan’s Council of Economic Advisers and is former President of the National Bureau for Economic Research (NBER).

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Arnold Kling on the death penalty

Wednesday, May 25th, 2011

Through the miracle of google search, I ran across an interesting comment on capital punishment posted by Arnold Kling, one of my favourite bloggers.

My personal opinion, which is unlikely to be swayed much either direction by econometric results, is that the death penalty is unlikely to have much effect on murder. My guess is that most murders are committed under circumstance in which the killer is neither in the mood or in possession of the data to incorporate potential death penalty punishment.

On the other hand, society would benefit from making other crimes capital offenses. When I was in graduate school in Cambridge (Ma.), double-parking was rampant. I wanted to get around on my bike, and urban streets are hazardous enough as it is. Double-parked cars are a nightmare. I was a teaching assistant for Ec 10 at Harvard, and when it came time to teach the economics of crime, I advocated the death penalty for double-parking.

I am pretty sure that the death penalty would work in that case, because double-parking is not a crime undertaken by someone whose thought processes have shut down. Double-parkers are making rational calculations, so that the death penalty should have huge deterrent effects.

So from a deterrence standpoint, we should make a capital crime out of double-parking, not murder.

As far as crimes go, econometrics falls somewhere in between double-parking and murder. I’m not sure about the right level to set the deterrent, but it needs to be higher than what we have today.

Arnold Kling, “Econometric Confirmation Bias“, EconLog, 22 October 2007.

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econometrics of the death penalty

Wednesday, May 25th, 2011

Gebhard Kirchgässner surveys econometric studies published in the last ten years on effects of the death penalty, and shows how simple it is to produce results that do or do not support the deterrence hypothesis. This is an important paper. I recommend that you download and read it in its entirety, but nonetheless attempt to summarize the author’s main message below.

On November 2, 2007, R.D. Adler and M. Summers published an article in the Wall Street Journal with the title “Capital Punishment Works”. With reference to the diagram in Figure 1 below, they state that over the period considered, from 1979 to 2004, “each execution seems to be associated with 71 fewer murders in the year the execution took place”, and that this association was significant at the 0.05 percent [sic] level. Acknowledging that there might be a problem of causality because some murders took place in the years of observation before the executions, they lagged the executions’ variable and got an even stronger result: “Each execution was associated with 74 fewer murders the following year”, statistically significant even at the 0.03 percent [sic] level. Their defence of the death penalty ended in the following (rhetorical) question: “Do we save this particular life at the cost of the lives of dozens of future murder victims?”

Figure 1: Executions and homicides, USA, 1979-2004

[Using a longer series, and more sophisticated techniques,] one can find any result demanded; this simple model does not allow for robust results. ….

[An inconvenient fact is] those states that do not use the death penalty have consistently lower homicide rates than those which execute people. …. Moreover, both series are very highly correlated, with a correlation coefficient of 0.918. [See Figure below.] In any case, however, if executions have a deterrent effect on murders, this effect should be larger in states with than in states without the death penalty. ….

Figure: Homicide rates in U.S. States with and without death penalty, 1977-2007

[There is no evidence of this.] The number of executions cannot explain the difference in the developments between the two groups of states. ….

A critical and cautious examination of … [a large literature] leads to the conviction that we cannot draw any strong conclusions. While there is some evidence that a deterrent effect might exist, it is too fragile to be certain. ….

[D]efenders of the death penalty … still insist that the econometric evidence is strong enough to justify the belief in a considerable deterrence effect, even if they admit that the evidence is far from being perfect. Those who consider the death penalty to be unconstitutional point to the weaknesses of these studies. ….

That social scientists contradict each other in such situations is neither new nor unique …. What is more or less unique is the divide between economics and the other social sciences: While most (not all) economists believe in the deterrent effect of death penalty and defend the evidence presented, most other social scientists, including law professors, question the evidence and do not believe that it can justify death penalty. ….

[This] divide … is … not surprising. Economists believe in incentives more than other social scientists do. They usually believe in the deterrent effect of punishment and, therefore, also of capital punishment. The only relevant question for them is whether the change from life imprisonment to death penalty has a positive marginal deterrence effect. In recent decades, the deterrent effect of criminal law has been questioned by psychologists and by people from law departments following them; besides deterrence, there are many other reasons why people obey the law.

Gebhard Kirchgässner, “Econometric Estimates of Deterrence of the Death Penalty: Facts or Ideology?“, CESifo Working Paper 3443, May 2011.

Gebhard Kirchgässner (born 1948) is Professor of Economics and Econometrics at the University of St. Gallen (Switzerland). This paper is forthcoming in Kyklos 64 (2011).

Professor Kirchgässner cites, as a typical economist’s view on this issue, University of Chicago Nobel laureate Gary Becker (born 1930). The strong belief of Professor Becker in the disincentive effects of capital punishment is a superb example of what I have called “faith-based economics” or “economics as faith“.

I support the use of capital punishment for persons convicted of murder because, and only because, I believe it deters murders. If I did not believe that, I would be opposed because revenge and … other possible motives … should not be a basis for public policy.  ….

The available data are quite limited, however, so one should not base any conclusions solely on the econometric evidence. Still, I believe the preponderance of evidence does indicate that capital punishment deters ….

Of course, public policy on punishments cannot wait until the evidence is perfect. Even with the limited quantitative evidence available, there are good reasons to believe that capital punishment deters murders. Most people, and murderers in particular, fear death, especially when it follows swiftly and with considerable certainty following the commission of a murder.

Gary S. Becker, “On the Economics of Capital Punishment“, Economists’ Voice, March, 2006. Cited by Kirchgässner (2011).

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aid for the ‘deserving poor’

Tuesday, May 24th, 2011

Three US-based economists have completed an assessment of means-tested and social insurance programmes in the United States. They conclude that the benefit system is “paternalistic and tilted toward the support of the employed and toward groups with special needs and perceived deservingness” because that is what voters want. Here are two key paragraphs from the “summary and conclusions” section of the paper.

We note several characteristics of the U.S. benefit system which other studies have similarly noted. First, the U.S. system favors groups with special needs, such as the disabled and the elderly. Groups like these which are perceived as especially deserving receive disproportionate transfers and those transfers have been increasing over time. Second, the system favors workers over nonworkers and has increasingly done so over time. The rise of the EITC [Earned Income Tax Credit] and the decline of AFDC/TANF [Aid to Families with Dependent Children/Temporary Assistance for Needy Families] is most illustrative of this trend. Third, the system has a preference for in-kind transfers for food, medical care, and housing over pure cash transfers. This preference has increased over time. Aside from the TANF program, which has shrunk though it still has an impact on single-parent families, all other cash programs in the U.S. have a specially favored group (the disabled, workers, etc.) as their recipients.

The result of these preferences is that the U.S. system differs dramatically from the universalist ideal envisioned by promoters of the negative income tax and others proposing similar systems. This ideal would provide cash benefits only on the basis of income and not on the basis of any other characteristic, and would therefore serve all poor families in similar economic circumstances equally. It would provide for all their consumption needs, not just a subset of them. Instead, the U.S. public appears to be paternalistic, preferring to impose its own consumption preferences on the poor, and appears to be heavily influenced by perceptions of deservingness. It also appears to prefer to subsidize the low-income employed and to disfavor providing subsidies to nonemployed men or to women to remain at home with their children. The latter preference may arise from the increasing labor force attachment of middle class women and consequent changes in expectations about whether women should work.

Yonatan Ben-Shalom, Robert A. Moffit and John Karl Scholz, “An Assessment of the Effectiveness of Anti-Poverty Programs in the United States“, NBER Working Paper 17042 (May 2011).

This paper will be published as a chapter in Oxford Handbook of the Economics of Poverty, edited by P. Jefferson (Oxford University Press, forthcoming). An ungated copy is available here.

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plain talk about the dollar

Monday, May 23rd, 2011

Christina Romer is frustrated that government officials cannot speak openly about the exchange rate.

At a recent news conference, Ben S. Bernanke, the Federal Reserve chairman, was asked about the falling dollar. He parried the question, saying that the Treasury secretary was the government’s spokesman on the exchange rate — and, of course, that the United States favors a strong dollar.

Listening to that statement, I flashed back to one of my first experiences as an adviser to Barack Obama. In November 2008, I was sharing a cab in Chicago with Larry Summers, the former Treasury secretary and a fellow economic adviser to the president-elect. To help prepare me for the interviews and the hearings to come, Larry graciously asked me questions and critiqued my answers.

When he asked about the exchange rate for the dollar, I began: “The exchange rate is a price much like any other price, and is determined by market forces.”

“Wrong!” Larry boomed. “The exchange rate is the purview of the Treasury. The United States is in favor of a strong dollar.”

For the record, my initial answer was much more reasonable. …. And a high price for the dollar, which is what we mean by a strong dollar, is not always desirable. ….

Strangely, every politician seems to understand that it would be desirable for the dollar to weaken against one particular currency: the Chinese renminbi. For years, China has deliberately accumulated United States Treasury bonds to keep the dollar’s value high in renminbi terms. The United States would export more and grow faster if China allowed the dollar’s price to fall. Congress routinely threatens retaliation if China doesn’t take steps that amount to weakening the dollar.

But in the very next breath, the same members of Congress shout about the importance of a strong dollar. If a decline in its value relative to the renminbi would be beneficial, a fall relative to the currency of many countries would help even more in the current situation.

To say this openly risks being branded not just an extremist but possibly un-American.

Christina D. Romer, “Economic View: Needed: Plain Talk About the Dollar“, New York Times, 22 May 2011.

Berkeley economist Christina Romer recently chaired President Obama’s Council of Economic Advisers.

Update: Greg Mankiw links to this op-ed, with the comment “an excellent column from Christy Romer”. I agree.

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taxes and growth

Monday, May 23rd, 2011

Via Mark Thoma, University of Arizona sociologist Lane Kenworthy asks: If high taxes are so bad, why haven’t they harmed the economies of Denmark and Sweden?

Taxes reduce the payoff to entrepreneurship, investment, and work effort. If taxation is too heavy, these disincentives will weaken a nation’s economy. But at what point does the harmful impact kick in? And how large is it?

Half a century ago, in 1960, taxes totaled about a quarter of GDP in Denmark, Sweden, and the United States. The tax take then began to rise in Denmark and Sweden, reaching half of GDP by the mid-1980s, where it has remained. In America it has barely budged, hovering between 25% and 30% of GDP throughout the past five decades.

[...]

If heavy taxation has harmful economic effects, why have Denmark and Sweden performed similarly to the United States during a period of several decades in which their taxes were much higher than America’s? [See the full essay for details.]

…. At what point does the harmful impact of taxes on the economy kick in? And how large is it? The Danish and Swedish experiences over the past generation pose a challenge for those who believe the answers to these two questions are “somewhere below 50% of GDP” and “large.” It’s a challenge that in my view has yet to be met.

Lane Kenworthy, “Is heavy taxation bad for the economy?“, Consider the Evidence, 22 May 2011.

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