While Edward Prescott was rewarded with the Nobel prize in Economics for his work on business cycles and monetary policy, he has also done some work on the issue of the effect on the effect of taxes in discouraging work efforts. And he concludes that virtually the entire difference between the United States and Western Europe in work efforts (both in lower employment/population ratio and lower average work week for the employed) can be attributed to the higher marginal tax rates in Western Europe. Which is highly consistent with the conclusion I made in my article on the subject, that the weakness of Western European economies is largely due to high taxes.
Source link: http://archive.mises.org/2591/edward-prescott-on-the-substitution-effect/
Edward Prescott on the substitution effect
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I find it strange that this Yahoo news article quotes Prescott as endorsing Bush’s tax cuts, but has nothing at all to say about government deficits. It’s absurd (to me) that an economist would endorse tax cuts without also advocating spending cuts in order to balance the budget. Has the journalist or editor only used selective quotes (presumably in order to help Bush)?
Well, either the journalist decided to only quote Prescott selectively or maybe Prescott is a supply-side economist. Supply-siders are right in their analysis of the negative effects of taxes but wrong in ignoring the negative effects of budget deficits.
This is folderol.
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