During all this time and throughout a long list of exercises, assuming as the maintained hy-
pothesis a negative (positive) correlation has been proved alternatively to be true, false and
spurious, and finally also indeterminate (Agell et al., 1997). Looking at present data one can-
not however deny that some low taxes (especially labor and corporations) countries seem per-
form better, as Ireland and the United Kingdom among the Europeans.
As before pointed out, the story has then just only relatively robust conclusion. Negative
relationships between taxes and growth seem do exist by their size is small and they can be
caught up just by looking at selective channels. As a consequence growth enhancing tax re-
forms should be huge in amount and strictly targeted, i.e. the opposite from the prevailing
ones mostly adopted by the European countries in the 1990s. The difficulty to find enough
budget backing suddenly arises. The analysis provided by De Novellis and Parlato (2003)
makes then clear that abiding also by the present “soft” rules of the Stability Pact prevents
almost any European Country from having the room to reduce fiscal pressure, without com-
pensating for this.17 Expenditure cuts are commonly suggested (Tanzi 2003) foreword and
more widely Tanzi and Schuknecht 1997) and may be useful in the long run, under the condi-
tion that the welfare state is not dismantled together with its contribution to economic growth,
social cohesion and fairness (Atkinson 1999). De Novellis and Parlato (2003) warn us how-
ever that expenditure cuts, workable in the short to medium term, must already be devoted to
fulfilling the Stability Pact requirements.
Wide and selective tax shifts thus become the last option to check out. The candidates are
labor and corporate taxes to be taken off to a relevant extent. To have not just marginal effect,
the reduction of their amounts must roughly reach near about one third for both the burdens.18
This means in the EU average more or less one point of GDP for “all in” corporation taxes
and near about five point of GDP in (mainly employers) social contributions (Eurostat data,
see back Table 1). Income tax on labor should instead not to be dramatically changed for the
reasons given at the end of this paragraph (i.e. lower contributions and more taxes in funding
social security) and in the following one (i.e. vertical equity). On the contrary tax burden on
consumption, rents and externalities (= environment) should become substantially heavier.
17 Making the Pact more rational and less binding is also suggested, by substituting debt to deficit as the target
for budget consolidation.
18 This comes for labor from the quoted elasticity figures and for corporation from international past experiences
(e.g. Ireland) and planned reforms (e.g. Germany).
12