The Stimulus Package

[Professor S]

Hopefully the following will put this very frustrating argument to rest.

The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.

http://www.nber.org/digest/mar08/w13264.html

OECD in Figures (2003) shows total taxes as 45.3 percent of GDP in France, compared with 29.6 percent in the United States. But it would be a mistake to conclude that the higher average tax burden in France is a result of that country’s more steeply graduated income tax. French income tax rates claim half of any extra dollar at incomes roughly equivalent to $100,000 in the United States, and exceed the highest U.S. tax rates at even middling income levels. Yet these high individual income taxes account for only 18 percent of revenues in France, about 8.2 percent of GDP, while much lower individual income tax rates in the United States account for 42.4 percent of total tax receipts, or 12.5 percent of GDP. Countries such as France and Sweden do not collect high revenues from high marginal tax rates, but from flat rate taxes on the payrolls and consumer spending of people with low and middle incomes. Revenues are also high relative to GDP partly because private GDP (the tax base) has grown unusually slowly, not because tax revenues have grown particularly fast

http://www.econlib.org/library/Enc/M...-105_table_032