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Left Foot Forward > Published by Will Straw, August 23rd 2011 at 4:27 pm

Flat taxes do not deliver growth

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Earlier today, Guido Fawkes drifted from his muck raking comfort zone to offer an economic theory based on three data points. In response to blogs from myself and Labour List about Britain’s slow growth performance, the normally sharp blogger implied that the Baltic countries’ flat taxes were the reason behind their high growth rates.

Any statistician will tell you that a correlation does not make a causation. The problem for Guido is that he doesnt even have a correlation. There are 21 countries with flat taxes. Projections from the IMF show that their average expected growth rate for 2011 is 4.1 per cent.

By contrast, the global economy will grow by 4.3 per cent this year so flat tax economies are underperforming the rest of the world.

There’s a decent debate to be had about why the Baltic countries are growing faster than other European economies but to claim that it’s all down to their flat tax makes about as much as sense as claiming that heavy taxation is bad for the economy – another Guido staple.

  • http://twitter.com/lbutcheruk/status/106025548949635074 Lee Butcher

    @GuidoFawkes is wrong: Flat taxes do not deliver growth http://t.co/ilmb5Mw

  • http://twitter.com/c_a_jonestechno/status/106025723961159680 CAROLE JONES

    @GuidoFawkes is wrong: Flat taxes do not deliver growth http://t.co/ilmb5Mw

  • http://twitter.com/politicalplanet/status/106028003003351040 Political Planet

    Flat taxes do not deliver growth: Guido Fawkes claims flat taxes lead to growth. They do not as data from the IM… http://t.co/yxSDDVN

  • http://twitter.com/philcane/status/106028466687848448 Philip Cane

    @GuidoFawkes is wrong: Flat taxes do not deliver growth http://t.co/ilmb5Mw

  • http://twitter.com/londonstatto/status/106037793897201664 James Farrar

    Major logic #fail RT @leftfootfwd @GuidoFawkes is wrong: Flat taxes do not deliver growth http://t.co/jJAVhHD

  • james

    Amused that the link you give to debunk the “heavy taxation is bad for the economy” argument uses one less data-point than Guido (i.e just Denmark and Sweden).

  • http://oxfordkevin.carbonclimate.org Oxford Kevin

    I think you’ll find that the Baltic Countries had Iceland size economic slumps. They are still further from their pre-recession gdp than the uk is. They are not good examples of the wonders of flat taxes.

  • Mr. Sensible

    The right just do not get it.

    And what did Osborne say? We would not cut the deficit on the backs of the poorest.

  • 13eastie

    Thanks for the stats lesson, Will. Your argument is apparently based on comparison of a single data point (for 2011 4.3% v 4.1%). Incontrovertible evidence of a trend?

    After you’ve looked it up, please would you let us know the p-value for this?

    Perhaps you’d like to treat us all to a webinar on self-aggrandising and incorrect use of the reflexive pronoun while you’re at it?

  • http://twitter.com/americanliberal/status/106246860854935552 American Liberal

    The mirage of flat taxes: "Flat taxes do not deliver growth" by @@WdjStraw (in @LeftFootFwd): http://t.co/Uf4HCmZ #P2

  • Will Straw

    Thanks for the comments:

    James – the onus is on Guido to support his claim with proper academic evidence rather than just asserting that heavy taxes dampen growth or that flat taxes enhance it. The Lane Kenworthy blog puts a significant fly in the ointment of that theory. If you have an academic paper showing a causal link between low taxes and high growth which shows that Sweden & Denmark are just outliers, I’d love to see it.

    Oxford Kevin – Exactly. As I pointed out to the TaxPayers Alliance on twitter, the GDP collapse in 2009 was -18% in Latvia, -15% in Lithuania and -14% in Estonia.

    13eastie – A regression with a dummy variable of flat taxes (as the independent variable) and growth levels (as the dependent variable) would end up looking exactly the same as the averages above. The p value would fail to reject the null hypothesis precisely because there is no statistically significant link between the two variables.

  • 13eastie

    Ludicrous study design e.g. sample size of 1 (2011) gives any null hypothesis a decent chance of surviving, Will.

    But not for the right reasons.

    That Guido’s message is garbled doesn’t necessarily make it wrong, but your argument against it shares and exceed its failings.

    You’re playing the man, not the ball.

  • Leon Wolfson

    @3 – Right, and he hasn’t. It’s a knife in the kidneys.