From the Wall Street Journal 3/12/06 edition:

Iceland’s 300,000 citizens have become some of the world’s wealthiest people by opening up their economy and cutting taxes, and now they’re contemplating another dose of the same economic tonic.

The government convened a special task force in 2005 to look into ways of transforming Iceland into a financial hub. Headed by Sigurdur Einarsson, chairman of Kaupthing, the country’s biggest bank, the committee recommended in November that the corporate-tax rate be reduced to 10% from the current 18%. That’s below the 12.5% in that other European economic powerhouse surrounded by water — Ireland.

The benefits of low taxes are on full display in Iceland, which provides an almost perfect demonstration of the Laffer Curve. From 1991 to 2001, as the corporate-tax rate fell gradually to 18% from 45%, tax revenues tripled to 9.1 billion kronas ($134 million in today’s exchange rate) from just above 3 billion kronas. Revenues have more than tripled again since 2001 to an estimated 33 billion kronas last year. Personal income-tax rates were cut gradually as well, to a flat rate of 22.75% this year from 33% in 1995. Meanwhile, the economy has averaged annual growth of about 4% over the past decade.

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This entry was posted by Brian on Tuesday, March 13th, 2007 at 5:04 am and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.