Tax Burden and Economic Performance

So I changed my sample set to reflect only those countries in the OECD for which the relevant information was available. Then I messed around with nonlinear regression equations and came up with some higher correlation coefficients. Here are the results:

OECD 30 Tax Burden as a Share of GDP


Tax Burden and GDP per capita.


R = +0.384 (medium strength)

Tax Burden and Average Annual Growth in GDP per Hour Worked (one measure of productivity), 1980-2006.


R = +0.388 (medium strength)

Tax burden is given as a percentage of GDP. Data available here.

GDP per capita is provided in 2007 USD (PPP). Data available here.

Annual growth in GDP per hour worked data here.

So a higher tax burden has a moderately strong positive correlation with both overall income per capita and the rate of productivity growth since the beginning of the Reagan/Thatcher era.

Good Wages = Good Business

This is just an interesting article I read in Slate about the CostCo vs. Wal-Mart saga. The article does a good job summarizing the differening strategies.

The bottom line is that while CostCo. has not shown the high profit margins of Wal-Mart, it clearly has demonstrated a "slow but steady winsthe race" attitude, as the article mentions CostCo's long-term stock performance as solid and theoutlook is even slightly more optimistic than Wal-Mart's.

This comparison serves as an excellentexperiment and I actually think it provides evidence that government regulations that mimicked CostCo's benefit structure would not cause businesses to shut its doors or significantly hamper economic growth. (I don't have the graphs to prove it, but I think Ryan's graphs indicate precisely this point.)

Gas Prices Abroad

Chris can probably testify directly to this, but the New York Times ran the above piece today about gas prices in the U.S. as compared to both oil producing countries and the nations of Europe. Ryan and I had been talking briefing about how Europeans have been used to paying over 4 dollars for gas for a while, and this chart indicates why. At least nearly half (and often more) of a gallon of gas in Europe is government tax.

Now, far from bringing these economies to a halt, this tax appears to have provided a steady revenue stream while at the same time encouraging conservation rather than consumption. And with continued (and obvious) evidence that higher gas prices increase reliance on public transportation, a higher gas tax seems like a double bonus. Whereas European citizens benefit from the tax by consistent, substantial investment in public transportation, the problem in the United States is that as oil compaies rake in the profits, they eventually push people people in the right direction (public transportation) but leave those people at the mercy of systems that generally are not adequately funded.

I hadn't intended to bring this around to Barack Obama, but I shamelessly will. The whole story reinforces the incredible short-sightedness of McLasik's plan to have a "gas tax holiday." Obama definitely scores a point on this one. The really ballsy position would be to reccommend a phased increase in the federal gas tax to match European levels. As gas prices will significantly rise anyway, all citizens should benefit from well-funded, viable transit alternatives rather than continue to be simply "taxed" by the oil companies.

Just a Little Statistics Refresher

The Wikipedia article on statistical correlation cites this book Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.) Hillsdale, NJ: Lawrence Erlbaum Associates which suggests that, in psychological research, these guidelines apply to interpreting correlation coefficients (i.e., the strength of the relationship between two variables):

Small: +/- 0.1 - 0.3
Medium: +/- 0.3 - 0.5
Large: +/- 0.5 - 1.0

The correlation coefficient is the square root of the coefficient of determination (R-squared), which is the number that appears on each of the graphs I have posted in the two previous posts. So for the following regressions, the correlation coefficients are:

Tax Burden & HDI: +0.432 (Medium)
Tax Burden & GDP/capita: +0.327 (Medium)
Tax Burden & Income Inequality: -0.582 (Strong)
Tax Burden & Absence of Social Mobility: -0.523 (Strong)
Income Inequality & GDP/capita: -0.440 (Medium)
Income Inequality & HDI: -0.422 (Medium)
Income Inequality & Absence of Social Mobility: +0.646 (Strong)

I think it's valid to use the psychology guidelines to help us interpret these results. So a high tax burden is highly correlated with social mobility and income equality and moderately correlated GDP/capita and HDI. Income inequality, in turn, is highly correlated with the lack of social mobility, and moderately negatively correlated with GDP/capita and HDI.

So I may have understated the strength of these relationships. They are actually quite strong.

"It's Just Human Nature"

This is some amazing stuff. I'm not sure about you guys, but I find the original report a little mind-blowing, so here is a link to a more comprehensible synopsis. According to the latter report:

"In setting up this study the researchers wanted firstly to explore whether equity or efficiency was stronger to our sense of justice, and secondly, they wanted to find out how big a role emotions played in resolving such questions"

...

"The results showed that participants overwhelmingly chose equity over efficiency. 'They were all quite inequity averse,' said Hsu, who explained that the findings support other research that suggests people are fairly intolerant of inequity."

So which side has the upper hand in the "human nature" debate again?

Twiking the System

A professor at the U. of I. has one of these. They look kinda awesome. Maybe we should ban all automobile traffic in the city besides emergency vehicles, cargo trucks, and buses, but allow these things (in addition to all those other things) on highways and in rural areas. The article is poorly written but the information is really interesting. Apparently they are classified as motorcycles for DOT purposes, so it's legal to drive them on the roads, and you can charge them in a standard electrical outlet. They can reach top speeds of 50-55 mph.

Such Prescience

I mostly approve. These things could always be done a little better, but I like the direction they're taking. It would be even more helpful here.