BOOK
Taxation, Government Spending and Economic Growth
Philip Booth | Ryan Bourne | Rory Meakin | Lucy Minford | Patrick Minford | David B. Smith
(2016)
Additional Information
Book Details
Abstract
Amidst the debates about ‘austerity’ a number of vital debates in public finance have been sidelined. Because the reductions in government spending – small though they have been so far- have been designed to reduce the government’s borrowing requirement, there has been little discussion of whether the size of the state should be reduced in order to facilitate long-run reductions in the burden of taxation. This book traces the history of the growth of the size of the state over the last 100 years whilst also making international comparisons. There is a particular focus on recent and projected future developments which shows that, though the total level of government spending has not decreased significantly in recent years, there has been a big redirection of spending from some areas to others. The authors then examine the evidence on the relationship between taxation and economic growth. As well as reviewing recent literature, they also undertake new modelling that higher taxes are detrimental for growth. In the final part of the book, the whole UK tax system is reconsidered in a proper economic framework. The UK has one of the world’s most complex tax systems and its incoherence has increased over the last five years. Sweeping reforms are proposed to the system which wold involve abolishing around 20 taxes and the development of a simple, predictable tax system based on principles that should gain wide acceptance.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| _GoBack | 27 | ||
| _Ref310717193 | 53 | ||
| The authors | x | ||
| Foreword | xiii | ||
| Summary | xvi | ||
| Tables, figures and boxes | xxiii | ||
| 1\tIntroduction | 1 | ||
| Philip Booth | 1 | ||
| The growth of government spending | 1 | ||
| Government spending, taxation and growth | 3 | ||
| Recent trends in types of government spending | 8 | ||
| Regional differences | 9 | ||
| But what about austerity? | 10 | ||
| Why does taxation affect economic growth? | 11 | ||
| Tax and growth: the evidence | 14 | ||
| Designing an effective tax system | 19 | ||
| Conclusion | 22 | ||
| References | 23 | ||
| Part 1 | 25 | ||
| The growth of government 1870–2020 | 25 | ||
| 2\tHow should government spending and tax burdens be measured? | 27 | ||
| David B. Smith | 27 | ||
| Introduction | 27 | ||
| It is government spending and not taxation that determines the burden of government activity | 28 | ||
| No institution can tax itself | 32 | ||
| How do we define the public sector? | 35 | ||
| How do we define national output? | 37 | ||
| The national accounts revolution: ESA 2010 | 41 | ||
| Is there a best buy? | 45 | ||
| 3\tHistorical trends in the government spending and tax ratios | 48 | ||
| David B. Smith | 48 | ||
| The international experience | 48 | ||
| The British experience 1870–2015 | 55 | ||
| Regional breakdown of UK government spending | 61 | ||
| 4\tAnd they call it austerity | 66 | ||
| Ryan Bourne | 66 | ||
| Introduction | 66 | ||
| Government spending under the coalition | 68 | ||
| Government spending under the Conservative government | 76 | ||
| The reckoning up: government spending 2010/11 to 2019/20 | 80 | ||
| Annex to Chapter 4 | 84 | ||
| David B. Smith | 84 | ||
| A misleading political myth in the austerity debate | 84 | ||
| 5\tSpending, tax and economic welfare | 87 | ||
| David B. Smith | 87 | ||
| Government expenditure by function | 87 | ||
| Divergent consequences of the different forms of government spending | 89 | ||
| Economic growth and the financing of government spending | 92 | ||
| The size of government: maximising growth and welfare | 94 | ||
| Conclusions | 97 | ||
| References | 99 | ||
| Part 2 | 103 | ||
| Taxation and Growth: The Empirical Evidence | 103 | ||
| 6\tTax and growth: theories and evidence | 105 | ||
| Patrick Minford | 105 | ||
| Introduction | 105 | ||
| The association between tax and growth: growth regressions | 108 | ||
| Modelling growth, taxation and investment incentives | 116 | ||
| Tax and growth modelling: a new approach | 118 | ||
| 7\tTax, regulation and growth: understanding the research | 122 | ||
| Lucy Minford | 122 | ||
| The effect of tax on growth: further analysis of the growth regression approach | 122 | ||
| The effect of tax on growth: further considerations | 126 | ||
| Entrepreneurship and growth | 128 | ||
| Labour market regulation and growth | 136 | ||
| Conclusion | 141 | ||
| 8\tTax, regulation, incentives and growth: new modelling for the UK | 142 | ||
| Lucy Minford | 142 | ||
| A model with productivity driven by policy | 143 | ||
| The policy variables driving productivity | 147 | ||
| Data for the policy variable | 149 | ||
| Tests of the model | 154 | ||
| Results: the impact of regulation and tax on growth | 155 | ||
| Conclusion | 157 | ||
| References | 159 | ||
| Part 3 | 167 | ||
| Designing a new tax system | 167 | ||
| 9\tThe principles of a ‘good’ tax system | 169 | ||
| Rory Meakin | 169 | ||
| Classical maxims of taxation | 169 | ||
| Bringing Adam Smith up to date | 170 | ||
| Practical impediments to achieving the best tax systems | 173 | ||
| Proposals for a redesign of the tax system | 175 | ||
| Tax design rules | 180 | ||
| Tax design rules to disregard | 183 | ||
| 10\tWhat should a good tax system look like? | 186 | ||
| Rory Meakin | 186 | ||
| Tax on income | 186 | ||
| Tax on consumption | 190 | ||
| Taxes on wealth | 197 | ||
| Corporate tax | 202 | ||
| Local taxation | 208 | ||
| The shape of a good tax system | 212 | ||
| 11\tThe future for taxation in the UK | 214 | ||
| Rory Meakin | 214 | ||
| Distributional issues | 215 | ||
| Tax administration | 220 | ||
| References | 223 | ||
| About the IEA | 226 | ||
| Table 1\tRatios of general government expenditure, including transfers, to money GDP at market prices (%) – selected countries | 2 | ||
| Table 2\tUK general government expenditure in 2012/13 – regional data | 10 | ||
| Table 3\tGeneral government transactions by subsector and economic category in fiscal 2015/16 | 38 | ||
| Table 4\tAlternative measures of the shares of government spending and taxes in UK national output in fiscal year 2015/16 | 41 | ||
| Table 5\tExpenditure components of money GDP by value in 2013, as reported originally and as subsequently revised | 44 | ||
| Table 6\tComparison of UK government spending and tax ratios in fiscal 2013/14 using four different generations of official data | 45 | ||
| Table 7\tRatios of general government expenditure, including transfers, to money GDP at market prices (%) | 50 | ||
| Table 8\tRatios of total tax revenues to money GDP at market prices (%) | 53 | ||
| Table 9\tRatios of main categories of UK general government expenditure plus taxes to money GDP at factor cost (%) | 58 | ||
| Table 10\tUK general government expenditure in 2012/13 by country and region on a residence basis | 62 | ||
| Table 11\tOverall total managed expenditure plans versus outcomes | 69 | ||
| Table 12\tReal spending per capita (2015/16 prices), 2010/11 to 2014/15 | 71 | ||
| Table 13\tGovernment spending 2010/11 to 2014/15 | 72 | ||
| Table 14\tComparison of real government spending forecasts from July Budget 2015, November Autumn Statement 2015 and March Budget 2016 (2015/16 prices) | 78 | ||
| Table 15\tMarch 2016 Budget forecasts for UK public spending by function and government receipts in 2016/17 | 88 | ||
| Table 16\tThe negative impact of taxation on economic growth | 110 | ||
| Table 17\tCorrelation coefficients for tax and regulatory components of composite index | 154 | ||
| Table 18\tDistributional effects data, by household income decile | 218 | ||
| Figure 1\tRatio of UK non-oil tax receipts to UK non-oil GDP at factor cost 1900–2015 | 29 | ||
| Figure 2\tRatios of UK general government expenditure and private expenditure to UK GDP at factor cost 1870–2015 | 33 | ||
| Figure 3\tRatio of UK general government expenditure to private GDP and non-oil taxes to non-oil private GDP 1900–2015 | 34 | ||
| Figure 4\tRatios of UK general government expenditure to GDP measured at both market prices and at factor cost 1870–2015 | 39 | ||
| Figure 5\tDifferences between factor-cost and market-price measures of the UK spending burden 1870–2015 | 40 | ||
| Figure 6\tAggregate OECD government spending and revenues expressed as a share of GDP at market prices 1960–2015 | 51 | ||
| Figure 7\tGap between UK and average OECD spending ratios (at market prices) 1960–2015 | 52 | ||
| Figure 8\tRatio of UK general government current expenditure to GDP at factor cost 1870–2015 | 60 | ||
| Figure 9\tRatio of UK general government debt interest and welfare payments to UK GDP at factor cost 1870–2015 | 61 | ||
| Figure 10\tReal changes in government spending by function 2010/11 to 2014/15 | 73 | ||
| Figure 11\tReal changes in DEL by government department 2010/11 to 2014/15 | 75 | ||
| Figure 12\tReal changes in DEL by government department 2015/16 to 2019/20 | 80 | ||
| Figure 13\tNominal and real expenditure (£ billion; real expenditure in 2015/16 prices) and spending as a proportion of GDP | 81 | ||
| Figure 14\tRatio of UK government ‘primary’ expenditure (i.e. excluding debt interest) to UK GDP at factor cost 1870–2015 | 85 | ||
| Figure 15\tRatios of welfare payments and social security taxes to UK GDP at factor cost 1900–2015 | 91 | ||
| Figure 16\tRatio of UK general government investment to UK GDP at factor cost 1946–2015 | 92 | ||
| Figure 17\tLabour market regulation, top marginal income tax and corporation tax rates | 152 | ||
| Figure 18\tThe overall barriers to entrepreneurship measure | 155 | ||
| Figure 19\tImpact of tax changes by income decile | 217 | ||
| Box 1\tKey facts – government spending 2010–2020 | 12 | ||
| Box 2\tDynamic scoring | 16 | ||
| Box 3\tProblems with traditional growth regressions | 114 | ||
| Box 4\tTax death-row | 210 |