This blogger has paid some attention to the recent change of power in France. I view it as about as promising as anything is French politics can be. My attitude is reflected in this, from American.com.
dvocates of economic reform in France often resemble Fox Mulder, the fictive FBI agent investigating mysterious phenomena in the TV series “The X-Files.” On Mulder’s office wall hangs a large poster with the words “I want to believe.” Those with an interest in reforming European welfare states tend to feel the same way when they hear European political leaders speak of reform. Well aware that so many attempts at reform have fizzled in Europe—and in France in particular—they often let hope triumph over experience.
But Nicolas Sarkozy, the new President of France, may be different. So far, all indications are that at least one key component of his promises—a significant package of tax cuts—will be passed into law. Other measures, particularly proposals designed to crack down on massive strikes—the favored pressure tool by unions to stop reforms—are in store as well.
Tax cuts in France. Incroyable. What is evident in this issue is the truth of the Laffer curve, one of the most successful pieces of economic analysis ever drawn out on a restaurant napkin.
The theory goes like this: at a certain point, taxation rates will produce diminishing returns. Suppose the tax rate is zero. How much of the national wealth will the government rake in? Presumably zero. That is the beginning point in the curve. Now suppose that the tax rate is one hundred percent. What will the government rake in then? Here the answer is not so obvious, but it is equally certain: zero. Why? No wealth will be left over for investment or to pay workers, and no one works for nothing. As the tax rate rises from zero, the government takes in more and more money. But at some point the line tax rates and receipts will curve back toward zero, as investment money dries up and everyone tries to hide their profits. France is one of those countries that have been living for a long time on the unfortunate side of the curve. Sometimes, to generate more wealth, one has to cut taxes. A lot of nations have realized this. It is still a mystery to the Democrats.
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