Wednesday, September 26, 2007

World index of economic freedom

The 2007 edition of the index of economic freedom is out. It measures the degree to which government rules support individual choice, voluntary exchange, freedom to compete, and security of privately owned property.

Since 1980,
  • Most improved: Hungary, Peru , Uganda, Ghana, and Israel.
  • Most degraded: Zimbabwe, Venezuela, and Myanmar.
  • Best: Hong Kong (8.9), Singapore (8.8), New Zealand (8.5), Switzerland (8.3), Canada (8.1), United Kingdom (8.1), United States (8.1), Estonia (8.0), Australia (7.9), and Ireland (7.9).
  • Worst: Zimbabwe (2.9), Myanmar (3.8), the Democratic Republic of the Congo, (4.0), Angola (4.2), the Republic of the Congo, (4.3), Central Africa Republic, (4.6), Venezuela(4.9), Burundi (5.0), Chad (5.1), and Niger (5.1)
  • Others [Country, rank (score)]: Germany, 18 (7.6); Japan, 22 (7.5); Mexico, 44 (7.1); France, 52 (7.0); Italy, 52 (7.0); India, 69 (6.6); China, 86 (6.3); Brazil, 101 (6.0); and Russia, 112 (5.8).
Interestingly, I thought that Ireland would be one of the most improved. In the 1990's they slashed tax rates and their economy is now one of the richest in Europe. Even the violence has stopped because the opportunity cost of fighting is too high.

4 comments:

  1. It may be that countries like Ireland will not show as much gain since the domestic tax rate is not listed as one of the criteria for the study and the data points are not consistent. (Note: I am in no way trying to discredit the study, just point out why Ireland may not show as much improvement as it may deserve.)

    The Fraser Institute collects information on taxes on international trade and they have a field for the cost of tax compliance, which the appendix clarifies as:

    This sub-component is based on the World Bank’s Doing Business data on the time required per year for a business to prepare, file, and pay taxes on corporate income, value added or sales taxes, and taxes on labor.

    So, it seems that the domestic tax rate is not factored into the rating. In addition, the cost of tax compliance seems to be a new field in the data with information only for the latest year.

    Great information! Thanks for posting a link to it. BTW, do you have any additional information on the reduction of violence being linked to the increased opportunity cost?

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  2. I know there is a literature on whether democracies wage war against one another (and democracy is often associated with economic freedom).

    At an individual level, there is a lot of evidence on what criminologists call "general deterrence."

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  3. I have read the literature about democracies not going to war. It is a classic part of the study of international relations, often called the democratic peace theory. I was wondering if you had any pointers to information specific to Ireland, since the situation is different in a few respects from the classic study of conflicts among nation states.

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  4. Nothing specific. There is a lot of policy talk about the "flat tax revolution," where nation states that adopt flat taxes do very well, but haven't seen anything about its role in ending violence. I did read a story (cannot recall where) about an IRA member released from prison who started making a bomb, but was turned in by his former colleagues before he could use it.

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