NCPA - National Center for Policy Analysis

Taxes Hobble The European Union

February 14, 1997

What is hobbling the economies of European countries? High tax rates, according to most economists.

  • Taxes among Western European nations average some 41.4 percent of gross domestic product.
  • Real GDP growth among European Union member countries averages a measly 1.5 percent a year since 1992 and industrial output has actually fallen by 0.5 percent since 1990.
  • And 97 percent of all new civilian jobs created since 1980 have been in the governmental sector, according to a study by the Organization for Economic Cooperation and Development.

So those heavy taxes are fueling public sector growth, while sapping job growth in the private economy, experts say. And huge social welfare programs give people a strong incentive not to work.

Observers say that some EU leaders would rather shore up their own bloated public sectors -- and have other countries do the same -- than reform them and cut taxes to promote private-sector job growth. Defenders of the welfare state decry "tax competition" between countries -- meaning competing for a larger share of productivity and markets by cutting tax rates. They call instead for "cooperation" between countries to assure that all will keep their taxes high.

But what happens when a country decides not to "cooperate"? Ireland's top corporate tax rate is 36 percent. But in a special enterprise zone it's just 10 percent. Because of that zone, the economy has had several years of strong growth: GDP grew by 7 percent last year and industrial production by 2.5 percent. Now, Ireland says it will cut all corporate taxes by 2010.

Source: Perspective, "Europe's Tax Tiff," Investor's Business Daily, February 14, 1997.


Browse more articles on International Issues