Taxes Per Person
Harvard economist Greg Mankiw argues that taxation as a percentage of GDP is a misleading way to compare national tax burdens and instead argues that we should consider taxes per person, which he calculates as Taxes/GDP x GDP/Person. Using this metric, the United States is in the middle of the pack of major economies:
Germany = .406 x 34,219 = 13,893
UK = .390 x 35,165 = 13,714
US = .282 x 46,443 = 13,097
Canada = .334 x 38,290 = 12,789
Italy = .426 x 29,290 = 12,478
Spain = .373 x 29,527 = 11,014
Japan = .274 x 32,817 = 8,992
I’m not sure that taxes as a percentage of income wouldn’t be more useful than taxes as a percentage of GDP, since what most of us are interested in with respect to taxes is impact on individual consumption rather than impact on aggregate production. Then again, I’m not an economist.
It’s also worth noting that the GPP/Person figures are at PPP (purchasing power parity) rather than raw numbers. I’m not sure what impact that conversion has on the comparison.
UPDATE: Brad DeLong points out that, by Mankiw’s measure, North Korea is a low-tax state. In reality, it’s a high-tax state with a very low GDP.
Matt Yglesias extends that analysis to attack Mankiw’s premise.
Does Mankiw really think that Italy has more scope to increase taxes and the size of its public sector than does the United States? Or consider that in Slovakia per capita GDP is just $20,000. By Mankiw’s logic, Slovakia could raise taxes up to 65 percent of GDP and it would still count as a country with a below-average tax burden!
Common sense is that if you’re worried about the impact of taxes on growth, then when you’re worried about is the scope of taxation relative to the total amount of economic activity taking place. For Slovakia to try to raise as much revenue as we have in the United States would involve potentially ruinous levels of taxation. Conversely, for the American government to raise as much revenue per person as they have in France would be relatively easy.
Both fair points. And, as a commenter points out, Mankiw’s per capita formula spreads the tax burden out to include children and others who don’t pay taxes.
If one’s goal is to determine individual tax burdens, it makes sense to calculate total taxes/total taxpayers. If it’s to determine the impact of taxation on national productivity, though, the traditional taxes/GDP is almost certainly a better measure than Mankiw’s slight-of-hand.