Garett Jones  

Hoisted from the Comments: Is European Progressivity Tiebout?

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On the question of how progressive a tax system can be if people can exit, Alexei Sadeski writes:

Interesting theory, Garett. 

A supporting piece of evidence is that the US has a more progressive national taxation system - far more progressive - than most / all European nations, and it is far far easier to exit the European tax regimes than the US federal regime.

Indeed, it is [nigh] impossible for a wealthy individual to exit the US regime.

Mankiw discussed a relevant study here, check the links to Sumner and Yglesias. When you consider that Europeans have high VATs and lower capital taxation than the U.S., the lower progessivity in Europe is almost obvious. 

But I'm curious about whether European progressivity is Tiebout-style: Do European economic elites get a better return on their taxes than American elites, as Tiebout might predict?  Does the power to flee--even if rarely exercised--increase government efficiency in Europe compared to the U.S. as a whole? 

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COMMENTS (11 to date)

Elements in lindert's paper, why the welfare state looks like a free lunch:

[broken personal url has been fixed--Econlib Ed.]

Pat writes:

Silly question - how do you pronounce "Tiebout"?

I learn about all these economists from blogs and have no idea how to say their name. (I didn't knew it was Kroog-man for the longest time.)

Garett Jones writes:


Like the football player, apparently:


Good link. Thanks. Good the see the relative regressivity of Europe was discussed a decade ago.

David R. Henderson writes:

@Garett and Pat,
I'm used to economists pronouncing it: Tee-boo. That's how I "grew up" with it from the early 1970s on.

kebko writes:

Alexandre: What an interesting paper. Although, it's a bit frustrating to think that in American public political discourse, we can't even stipulate the clear and relevant facts.

Doug writes:

You have to take into account taxes AND transfers to get the whole story. The U.S. might have a more progressive tax code, but European countries typically have more generous cash and in-kind transfers that can easily lead to a more progressive fiscal system when compared with the U.S.

This doesn't necessarily affect the Tiebout analysis, but some people might be confused by the "U.S. is more progressive" statement.

MG writes:

I think the progressivity and comprehensiveness (this one means "inalienable") of the tax code is underapreciated, and I am very pleased you have are bringing attention to the issue.

I have also thought about Doug's follow-up observation, but I am not convinced the a cost vs. benefits analysis(at the taxfiler level)would leave the US much less progressive. The Tax Foundation has done work that estimates that 60+% receive more than $1 in Federal benefits than pay in Federal taxes; the other 40% receive less, and the top 10% much, much less -- even though they are attributed the lion's share of defense spending. I doubt Europe could be more progressive than this and still pay it bills.

In Europe, exit is openly discussed.

When France's newly-elect President threatened to raise taxes in the highest incomes, the UK's prime-minister replied that London would roll the red carpet to welcome the tax refugees (curiously enough, the UK generally has higher taxes than France for high incomes, but special treatment for foreigners and no taxation of wealth).

Alexei Sadeski writes:


I'm not sure that you do, in fact, have to take transfers into account.

Garrett's point regards the tax code's impact on the wealthy specifically, and thus whether taxes are used for corporate welfare, for pure waste, or to provide alms should be irrelevant.

ajb writes:

I've always heard it as Tee Boo, but I just spoke to an old guy who claimed to know Tiebout and he said it was pronounced Tee Bo (as in bow and arrow).

Jerry Bannon writes:

What I found interesting about this discussion is the efficiency operator from the taxes collected. In the US it seems to be all about rates, and who pays what. Having lived in Europe and having discussions with them, they seem to think they are getting more for their relative "buck" than we Yanks.

Discussions limited to "socialism" and "welfare state" and "redistribution" score political points but really create more chaos than advance toward any actual goal.

My question that I think needs further study is that high "equally shared" VAT actually increase the "useful and efficient" allocation of the government's capital?

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