Is pork barrel politics competitive?

Posted by: Paul Donovan

09 Apr 2021

Weekly Updates

  • US President Biden has suggested a global minimum corporate tax rate, alongside large companies paying a sales tax to their customers' governments. This would effectively stop countries competing by having low corporate tax taxes.
  • Fiscal policy would still be an important driver of competitiveness. Instead of a “race to the bottom” for taxes, government spending will become more important to competitiveness. A competitive country is one where it is easy to do business. Government spending on transport, communication, and education will help set competitiveness.
  • Japan’s fiscal policy in the 1990s is a reminder that spending quality is far more important than quantity. High levels of government spending can create jobs, and that can be important in a cyclical sense. Reducing long-term unemployment through generous spending programs can also create structural benefits. But what really matters is whether government spending improves the structure of the economy, raising the trend rate of growth.
  • Spending on outdated education systems or building bridges to nowhere will not make an economy competitive. Vanity projects rarely boost productivity. As comparisons of corporate tax rates become less useful in setting a country’s competitiveness, economists are likely to spend more time looking at the quality of fiscal spending. More pork barrel politics means less competitiveness.

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