[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

MORE MARKETS, LESS GOVERNMENT
grew at robust annual rates, with free
markets, established rule-of-law and protected
private property rights. Using time
difference calculation as a measure, today’s
time gap between Slovenia and Ireland
is approximately 40 years 18 Iceland’s
recovery from decades of interrupted
Keynesian economic policy lasted from
than Icelandic policymakers estimated.
Until late 1980s, Icelandic economy was
marred by government ownership, periods
of high inflation when oil shocks, tight
labor markets and devaluation bias caused
a spiral of inflationary pressures. 19 In
1990, Icelandic policymakers reduced the
corporate tax rate from 50 percent to 33
percent by the mid 1990s. In 2003, the
rate was further slashed to 18 percent.
The effect of supply-side tax reform was
a pure theoretical assertion of the Laffer
curve whereby lower tax rates increased
revenue from taxes as a share of the GDP
respectively. According to Iceland’s Ministry
of Finance, in 1985 when corporate
tax rate was 50 percent, the share of corporate
tax revenue in the GDP was 0.9
percent. In 2003, when the corporate tax
rate was 18 percent, corporate tax revenue
in the share of the GDP jumped to 1.5
percent. 20 Thus, during the period of a
continued reduction of corporate tax rate,
overall revenue from corporate tax increased
by 67 percent. Noteworthy, the
restructuring of Iceland’s economy was
primarily based on privatization of nationalized
enterprises and assets, strong
fiscal management and responsible leadership
on the part of labor unions and
employers. Now, Iceland is one of the
wealthiest countries in the world. In 2006,
according to World Bank, 21 Iceland’s
gross national income per capita was
$50,580 per capita as measured by Atlas
method and $36,560 per capita in terms
of purchasing power parity.
India: High-Growing Tiger Or An
Economic Laggard?
In this article I highlighted the prospects
of the economic reforms in India. After a
detailed study of the data and empirical
work, I concluded the research and put it
in a written and hopefully understandable
form. India is an economy in transition
currently facing high output growth rates
and enviable economic perspective in the
future. Growth is expected to remain
steady over years in the future. However,
substantial change in global environment
demand a significant infusion of economic
reforms to boost the productive behavior,
economic growth while ‘rules-ratherthan-discretion’
monetary policy is
essential to the pursuit of price stability
instead of discretionary price controls and
market regulation that harm competitive
forces in the market. In the international
arena, India is frequently associated with
high-growing East Asian phenomena besides
China. 22 By 2040, China will reach
$123 trillion USD which is equal to three
times of global output by the end of
2000. 23 Growth estimates for India suggest
a relatively lower but steady-state
growth rate mainly because of political
constraints and structural costs such as
widespread perception of corruption, government
intervention and ownership of
enterprises and harmful regulation of the
economy through obscure administrative
code, fiercely uncompetitive investment
environment marred by red-tape, complexity
hostile to foreign direct investors,
trade protectionism and weak enforcement
of private property rights. These
particular politically-installed disadvantages
may hamper India’s long-term economic
performance and impede growth
prospects respectively. Relying on neoclassical
growth theory and strong growth
foundations such as free and deregulated
product markets, liberalized labor market,
the protection of private property,
trade liberalization to the fullest possible
extent, an independent judicial system,
the rule of law and market institutions
would, by experience and empirical
premise, significantly boost India’s economic
potentials and growth perspectives.
Deregulated product and labor markets, protection of
private property, trade liberalization to the fullest possible
extent, an independent judicial system and the rule of law
would signifi cantly boost India’s economic potential
A growing burden of taxes, corruption
and government size and spending would,
contrary to popular assertions, impede
India’s economic performance and its
prospects as a global economic powerhouse
in the 21st century.
End Notes
1
See: Edmund S. Phelps, Dynamic
Capitalism, Opinion Journal, Tuesday,
October 10, 2006
http://www.opinionjournal.com/editorial/feature.html?id=110009068
2
See: World Economic Outlook, International
Monetary Fund, October
2007, Washington D.C.
http://www.imf.org/external/pubs/ft/
weo/2007/02/index.htm
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