Part 1 - AL-Tax

Chapter 11AbstractThis article examines the relative tax burden of selected Asian economies from a microeconomicperspective. It employs data from the Tax Misery Index and the Indexof Economic Freedom to compare the tax burden of selected Asian economies to that ofsome European and North American economies. It then creates a hybrid index, whichprovides another, more representative, look at relative tax burdens from an investor’sperspective.11.1 IntroductionInvesting in a given economy must balance profit opportunities with any tax burdenthat partially or totally offsets these profit opportunities. Financial transparency,corporate governance, and public finance must also be weighted. It doesnot matter how profitable an investment might be if some government takes mostof the profits. What matters in the final analysis is how much is left after taxeshave been paid. However, most studies of taxation and public finance take amacro approach. They look at factors like government expenditures or taxes as apercentage of Gross Domestic Product (GDP) or some other macro variables. Oneproblem with this approach, especially in transition or developing economies, isthat the statistics may not be accurate, for a number of reasons. Because transitionand developing economies often have a large unrecorded sector (unofficial economy),it is not possible to know what the actual GDP might be. Some Asianeconomies may be classified as transition or developing economies, whereas othersalready have a strong, vibrant private sector.This study departs from the typical macro study. It takes a micro approach topublic finance by examining certain aspects of taxation and public finance fromthe perspective of corporations and individuals – those who actually pay thetaxes. Using the Forbes Tax Misery Index and Global Happiness Index, comparisonsare made between selected Asian economies and some developed Westerneconomies to determine how competitive Asian economies are in the area of publicfinance. The 2006 Index of Economic Freedom is also consulted. A comparisonis then made between the two studies, which present a somewhat differentview of public finance. A third approach is recommended that incorporates componentsof the Tax Misery Index and the Index of Economic Freedom to form anew index that better measures the relative competitiveness of Asian economiesin the area of public finance.269