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By A Smith (anonymous) | Posted March 26, 2011 at 18:29:01 in reply to Comment 61593
I was hoping you would ask that. In fact, Saudi Arabia has very low tax rates for citizens (2.5%), 20% on foreigners. It also has a 11% payroll tax. So while official tax revenue was only 6.6% of GDP, spending was 29.1% of GDP due to money from the state controlled oil company, which is just another form of taxation on the private sector.
However, where the Saudi's lose major points is in investment freedom (major areas of the economy are not open to foreigners), higher corruption, state controlled banking system and lack of property rights. These are not direct taxes, but to the extent they restrict the free market from operating efficiently, they are still a tax on economic growth.
Kuwait is similar, low income taxes but lots of money from the state controlled oil revenues. Government spending is 31% of GDP. The same negatives apply to investment freedom, corruption, property rights and banking.
As for the Nordic countries, taxes are higher. However, if we compare Sweden and Saudi Arabia, we see that government consumption, which is the amount of money spent by the government directly, as opposed to cash payments to people (welfare, pensions, unemployment), it is about the same at 26.8% and 25.2% respectively.
The big difference, however is in the the Nordic countries openness to foreign investment, lack of corruption, strong property rights and greater ability to start and operate a business.
You make a good point about low tax rates. By themselves, they are not enough to grow the economy. What you do want, however, is a government that respects the people and their income.
However, within Canada, where all other factors are roughly equal (investment freedom, corruption, banking system), there is still a positive correlation between low tax rates and higher GDP per capita.
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