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Archive for the ‘Eurozone’ Category

Tax-Income Ratios in G7 Countries

September 13, 2017 Leave a comment

In a previous post, I provided data on the ratio of tax receipts to GDP in the U.S. It was shown that the U.S. ratio fluctuated around 20 percent of GDP since 1960. Here I provide data on the remaining G7 countries (Canada, France, Germany, Italy, Japan, and the United Kingdom) which illustrates how different the U.S. is from many European economies. Below is a graph of the data drawn from the OECD (the Organization for Economic Co-operation and Development) covering 1995 to 2015.

The graph shows that tax-income ratios are much higher in the six G7 countries than they are

in the U.S. In 1995, the tax shares ranged from a low of 27 percent in Japan to a high of 43 percent in France. By 2015,  the tax shares range from 32 percent in Japan to 48 percent in France. In short, none of the six countries has a tax share as low as the U.S.

The Entitlements Crisis

The aging of the U.S. population is increasing the transfer payments made by the U.S. government and the obvious question is how the U.S. will finance these payments. It is unlikely that this can be done by borrowing (it is doubtful that the U.S. can borrow trillions of dollars each year) so this suggests that the tax-income ratios in Europe are what may be imposed in the U.S. as the entitlements crisis unfolds. This is what is meant by the charge that many politicians want to turn the U.S. into a European welfare state. What remains to be seen is if the U.S. taxpayers will agree to such a historically large increase in the tax-income ratio in the U.S.

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PIGS and the Eurobond

November 25, 2011 Leave a comment

The latest idea for dealing with the fiscal problems of the economies known as PIGS (Portugal, Italy, Greece, and Spain) is that bonds, backed by the entire Eurozone, be issued to finance government spending in the economies that are struggling to reduce their government deficits. One would think that the Germans would be opposed to this idea since the issuance of Eurobonds may result in the Germans paying for at least some of the spending by the PIGS.  However there seems to be some weakening in the German position as described in this article.

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