A multinational analysis of tax rates and economic activity.

Smith, Lawrence C., Jr. ; Smith, L. Murphy ; Gruben, William C. 等

INTRODUCTION

The relationship between taxes and economic activity is a complex one. While there are various types of taxes, such as income tax, sales tax, and property tax, the tax that receives the most scrutiny is the income tax. Income tax rates vary significantly among countries. The relationship between taxes, particularly the income tax, and economic activity is a factor in the economic progress and development of a national economy.

The purpose of this study is to examine the relationship between tax rates in selected countries and economic activity, including GDP growth, unemployment, and savings. The sample of countries used in the study consists of the Organization of Economic Cooperation and Development (OECD) countries. This study provides some background information regarding the OECD. This study also offers a brief review of past research concerning taxation and its impact on economic activity.

Results are mixed but reveal some meaningful relationships between tax rates and economic activity. At the macro level, these relationships should be considered by policy makers who are considering changes to tax laws. At the micro level, these relationships should be considered by corporate managers who are making decisions on where to set up business operations. The two levels are plainly connected, as macro level decisions of policy makers will affect the micro level decisions of corporate managers.

TAXES

Taxes can be dichotomized into direct taxes and indirect taxes. The income tax is a direct tax. Indirect taxes include the sales tax, also called consumption tax. Other indirect taxes include the value added tax (VAT), excise tax, estate tax, gift tax, employment tax, and user fees. In Europe, VAT is a major source of tax revenue. The VAT is applied at each stage of production for the value added to the goods. As with all taxes, the tax burden ultimately falls on the consumer because companies can reclaim taxes paid.

The income tax is the most widely used as a source of revenues for national governments around the world. The income tax has a direct impact on corporate profit, that is, reducing it. Determining how much tax an individual or a corporation pays depends on more than the tax rate alone. Other key factors include what income is taxable and what expenses are deductible. Regarding corporations, a key concern is when taxes are assessed and payable to the government. In the US, for example, earnings of foreign subsidiaries are generally not taxed until dividends are paid by the subsidiary located in the foreign country to the parent corporation located in the US. This postponement of taxes is referred to as deferral.

To fund growth in the size of federal governments, in recent decades, the amount of income tax collected has substantially increased in most countries. In the US, for example, total government expenditures relative to GDP are now more than three times higher than before the Great Depression. Total government expenditures rose to 42.7 percent of GDP in 2009, a proportion higher than any year except for three years of World War II, 1943 to 1945 (Chantrill 2010). Prior to the Great Depression, state and local government expenditures were much higher than federal expenditures. Subsequent to 1939, that situation is the opposite. Government expenditures on defense as a percentage of GDP are at historic lows, comparable to the 1920s. Most US government expenditures are on nondefense items such as health, income support, and education. That is true in most countries.

Another important issue regarding taxation regarding multinational companies is on what foreign source income is tax assessed. There are two approaches to taxation of foreign source income: the territorial approach and the worldwide approach. Under the territorial approach, only income earned within the nation's borders is taxed. For example, in Hong Kong, only income earned there is subject to Hong Kong tax. Under the worldwide approach, both domestic and foreign source income is taxed. For instance, in the US, a corporation must pay taxes on its earnings made domestically within the US but also on earnings from foreign sources, such as the earnings of the corporation's foreign subsidiaries.

A problem associated with the worldwide approach to taxation is that it can lead to double taxation. For example, the earnings of a foreign subsidiary of a US company will be taxed in the foreign country and also in the US. This double taxation can be minimized through tax credits and tax treaties. Minimizing double taxation is important, as double taxation is a major disincentive to establishing business operations in other countries. In addition, corporate earnings are actually taxed a third time, when the corporation distributes dividends to its shareholders, thus leading to triple taxation.

ORGANIZATION OF ECONOMIC COOPERATION AND DEVELOPMENT (OECD)

The countries included in this study are members of the Organization for Economic Cooperation and Development (OECD). The OECD countries were used in the study for several reasons, principally because they have been used in numerous other research studies, economic data is available, and their experiences regarding tax and economic activity should be of interest to anyone interested in this subject. The OECD is a Paris-based international economic organization that includes 30 countries. OECD members are mostly high-income economies with a high Human Development Index (HDI) and considered developed nations (OECD 2010a, Wikipedia 2010).

The OECD had its origin in the Organization for European Economic Cooperation (OEEC), led by Robert Marjolin of France, which helped administer the Marshall Plan for the reconstruction of Europe after World War II. Subsequently, membership was extended to non-European nations. In 1961, the OEEC was reformed into the OECD by the Convention on the Organization for Economic Cooperation and Development. The OECD's headquarters is located at the Chateau de la Muette in Paris, France (OECD 2010a, Wikipedia 2010).

The mission of the OECD is to bring together the governments of countries committed to democracy and the market economy from around the world to do the following:

* Support sustainable economic growth

* Boost employment

* Raise living standards

* Maintain financial stability

* Assist other countries' economic development

* Contribute to growth in world trade

The OECD provides a structure in which governments can compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies. In 1989, following political changes in Central and Eastern Europe, the OECD began assisting these countries to prepare market economy reforms. In 1990, the Centre for Cooperation with European Economies in Transition (now succeeded by the Centre for Cooperation with Non-Members) was established, and in 1991, the Program "Partners in Transition" was initiated for the cooperation with Czechoslovakia, Hungary and Poland. During 1994-2000 Poland, Hungary, Czech Republic, Slovakia, Mexico, and the Republic of Korea became members of the OECD (OECD 2010a). Member countries of the OECD are shown in Exhibit 1.

The OECD shares expertise and exchanges views with more than 100 other nations. In 2007, the OECD countries agreed to invite Chile, Estonia, Israel, Russia and Slovenia to open discussions for membership and offered enhanced engagement to Brazil, China, India, Indonesia and South Africa. Although enhanced engagement is not the same as accession to the OECD, it has the potential to lead to future membership. Approval of so-called "road maps" marks the start of accession talks with Chile, Estonia, Israel, Russia and Slovenia (OECD 2010a).

For over four decades, the OECD has been one of the world's largest and most reliable sources of comparable statistics and economic and social data. In addition to collecting data, the OECD monitors trends, analyzes and forecasts economic developments, and studies social changes or evolving patterns in trade, environment, agriculture, technology, and taxation. The OECD is one of the largest publishers in the area of economics and public policy.

Regarding taxation, collaboration among OECD nations has fostered the growth of a global web of bilateral tax treaties. The OECD publishes and updates a model tax convention which serves as a model for bilateral negotiations concerning tax coordination and cooperation. The model generally allocates the right to tax to the country from which capital investment originates (i.e., the home, or resident country) rather than the country in which the investment is made (the host, or source country). Consequently, the model is most effective for two countries which have reciprocal investment flows, but can be very unbalanced when one of the signatory countries is economically weaker than the other (Wikipedia 2010).

Beginning in the late 1990s, the OECD has made efforts to reduce harmful tax practices, focusing on activities of tax havens (while generally accepting policies of its member nations which would generally encourage tax competition). Mixed results have followed these efforts. The main objection is that the sanctity of tax policy is a matter of sovereign entitlement (Christians 2008). The OECD identifies nations it considers uncooperative in the efforts to improve transparency of tax affairs and meaningful exchange of information. This "blacklist" of uncooperative nations is officially titled "The List of Uncooperative Tax Havens" (BBC News 2000). Following reform efforts by these nations, all had been removed from the blacklist as of May 2009 (OECD 2009). Thus, the OECD program seems to have generated the desired result.

Tax havens remain a subject of concern to the OECD and other countries. Recently, a number of countries requested that the OECD investigate about 40 new tax havens in the world where undeclared revenues are hidden and which host many of the non-regulated hedge funds that have come under fire during the 2008 financial crisis. Some countries, including Germany and France have asked that the OECD specifically add Switzerland to a blacklist of countries which encourage tax fraud (Euronews 2008).

Other areas in which the OECD has made notable efforts to improve global economic activity include coordinating international action on corruption and bribery, creating the OECD Anti-Bribery Convention, which took effect in February 1999. This Convention has been ratified by 38 countries, all 30 OECD countries and 8 non-OECD countries (OECD 2010b). The OECD has implemented an anti-spam task force, which submitted a detailed report, with several background papers on spam problems in developing countries. The OECD is studying the effects of the information economy and the future of the Internet economy. The OECD publishes the Program for International Student Assessment (PISA) which is an assessment that facilitates comparison of educational performances among countries (OECD 2010a).

The structure of the OECD consists of three major bodies: (1) OECD Member Countries, (2) OECD Secretariat, and (3) OECD Committees. Each member country is represented by a delegation led by an ambassador. The OECD Secretariat is led by the Secretary-General. Delegates from member countries participate in committee and other meetings, chiefly arranged by the Secretariat. OECD Committee members are usually subject-matter experts from member and non-member countries. Representatives of all 30 OECD member countries plus representatives from some observer countries attend specialized committee meetings regarding policy areas, such as financial markets, trade, and economics. The OECD has approximately 200 committees, working groups and expert groups (Wikipedia 2010).

RELATED LITERATURE

Extensive research has been conducted regarding taxation and its relationship to economic activity, both at the micro, firm level, and the macro, national and international level. Tax policies have been used to create incentives for corporations to engage in various types of business activity. Of particular importance is the use of tax policies to provide incentives for businesses to relocate operations from one nation to another (cf., Wilson 1999 and Stewart 2009). International business and related taxation have been a part of business activity since early times, including ancient Asia, Mesopotamia, and among nations along the Mediterranean Sea. In modern times, international trade rapidly increased in the years following World War Two (Gray et al. 2001).

In foundational work on taxes and economic activity, Richman (1963) notes that countries may simultaneously want to tax the worldwide capital income of domestic residents, suggesting that taxes paid to foreign governments should be merely deductible from domestic taxable income. Prior research on international taxation examine its impact on multinational firms in developed countries (Adams and Whalley 1977), its relationship to foreign direct investment (Hartman 1984, 1985), its relationship to saving s (Gordon 1986), its relationship to strategic decision making (Bond and Samuelson 1989), and its economic premises (Ault and

Bradford 1990).

In a seminal study regarding taxation and production, Diamond and Mirrlees (1971) observe that small open economies result in extremely high costs in efforts to tax the returns to local capital investment, since local factors bear the burden of such taxes in the form of productive inefficiencies. Janeba (1995) analyzes the issues of corporate tax competition among countries, double taxation, and foreign direct investment. Wilson (1999) reviews theories of tax competition among countries. Baccheta and Espinosa (2000) examine international tax treaties. Gordon and Hines (2002) evaluate research findings on international taxation, noting connections and inconsistencies between theoretical and empirical observations. DeArcangelis and Lamartina (2003) identify fiscal policy shocks associated with different categories of expenditure and taxation, and simulate their impact on economic activity.

Kaplow (2005) studies the question of whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labor supply and cannot achieve the distributive ideal. He suggest that perhaps second-best rules for public goods provision, corrective taxation, public sector pricing, and other government activity should reflect concerns about distribution and labor supply distortion. Haufler et al. (2006) examine the increase in foreign direct investment and the expanding activity of multinational firms in exposing national corporate tax bases to cross-country profit shifting, which can lead to rising profitability in the corporate sector.

Schreiber and Fuehrich (2007) examine a proposal by the European Commission to establish a common corporate tax base for the purpose of decreasing compliance and administrative costs for European groups. Under the Commission's proposal separate entity accounting would be replaced by a profit allocation based on formula apportionment. Given that formula apportionment is based on the source principle, the group is motivated to invest in low tax member states. Consequently, some member states would potentially confront decreases in both real economic activity and tax revenue.

Devereux (2008) reviews economic principles for optimality of the taxation of international profit, from both a domestic and international viewpoint. He makes the case for traditional systems based on the residence of the investor or the source of the income and that nothing short of total harmonization across countries can achieve global optimality. He argues that conditions for national optimality are more difficult to identify, but are most likely to imply source-based taxation.

Haufler et al. (2008) present a simple political economy model where the median voter decides on a redistributive income tax rate. Based on their analysis, economic integration may raise or lower the equilibrium tax rate, and it is more likely to raise the tax rate of a low-tax country. The results are consistent with empirical observations that effective corporate tax rates have not fallen in all OECD countries, and that corporate tax revenues have generally risen. Zaman (2008) observes that widely accepted approaches to business and taxation in the West may be incompatible with practices in Islamic countries. Stewart (2009) discusses tax law and policy for indigenous economic development, with emphasis on business taxation. Kenny and Winer (2009) examine tax systems worldwide, including tax bases, collection costs, and political regime.

ANALYSIS AND RESULTS

Using data available from the OECD (OECD 2010a) and the Tax Foundation (Tax Foundation 2010), data was compiled regarding income tax rates and gross domestic product (GDP). GDP is the total market value of all the goods and services produced within the borders of a nation during a specified period. Exhibit 2 shows the federal, state, combined federal and state income tax rates along with GDP for four years, 2005 to 2008, for the 30 nations comprising the OECD. As shown, the average federal income tax rate is 25.49 percent, the average state income tax rate is 2.51 percent, and the average combined federal and state income tax rate is 27.65 percent. Average GDP increased from $1.184 billion in 2005 to $1.455 billion in 2008.

As shown in Exhibit 2, among the nations of the world, the US is one of only eight nations that include additional corporate income taxes assessed by state or local levels of government. The cost to business of these state-level taxes is partly reduced because they can be deducted from federal taxes. Nevertheless they add a second layer of tax and also add considerable complexity for multi-state and multinational businesses (Hodge 2008). Beyond the burden of simply paying the amount of taxes owed, complexity of taxes present huge difficulties to corporations, leading to significant compliance costs (Lassila and Smith 1997).

Exhibit 3 shows the change in GDP by country by year for the 30 countries of the OECD. The average change in GDP from 2005 to 2006 was 7.45 percent, from 2006 to 2007 was16.05 percent, and 2007 to 2008 was 9.12 percent. Exhibit 4 shows the percent change in GDP by country by year and split into two groups. The countries with the higher combined income tax are compared to the countries with the lower combined income tax. T-tests were used to analyze differences. In the higher tax group, which includes Japan with the highest combined tax rate of 39.54 percent, the average combined tax rate is 33.01 percent. In the lower tax group, the average combined tax is 22.29 percent, which is significantly different from the higher tax group (p<.001).

As shown in Exhibit 4, the average percent change in GDP was higher in all three time periods for the lower tax group than for the higher tax group. For example, in the first time period, 2005 to 2006, the average percent change in GDP was 6.59 percent for the higher tax group and 8.32 percent for the lower tax group. For 2006 to 2007, the average percent change in GDP was 13.49 percent for the higher tax group and 18.61 percent for the lower tax group. For 2007 to 2008, the average percent change in GDP was 7.75 percent for the higher tax group and 10.49 percent for the lower tax group. The difference was significant only in the middle time period, 2006 to 2007 (p<.01).

Unemployment is defined as the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. Exhibit 5 shows the combined tax compared to the unemployment rate for Years 1 to 4 (i.e., 2005 to 2008). During these four years, the average unemployment rate declined from a high of 7.05 percent in 2005 to 5.76 percent in 2008. Exhibit 6 shows the percent change in unemployment for three time periods. The percent change in unemployment decreased by 7.09 percent from 2005 to 2006, decreased by 7.80 percent from 2006 to 2007, and increased by 0.49 percent from 2007 to 2008.

Exhibit 7 shows the percent change in unemployment by country by year, and split into two groups. The countries with the higher combined income tax are compared to the countries with the lower combined income tax. As shown, the average percent change in unemployment was a negative 6.17 percent for the higher tax rate countries for 2005 to 2006. The average percent change was negative 7.06 percent for the lower tax rate countries in the same time period. Thus, the rate of unemployment was reduced more in the lower tax rate countries than in the higher tax rate countries for this time period.

Changes in unemployment for the other two time periods maintained the same relationship as in the first time period, that is, lower tax countries experienced more favorable changes in unemployment. During 2006 to 2007, the change in unemployment was a negative 5.47 percent for the higher tax rate countries and a negative 7.69 percent for the lower tax rate countries. Thus, unemployment decreased more for the lower tax rate countries than for the higher tax rate countries. During 2007 to 2008, the change in unemployment was a positive 4.85 percent for the higher tax rate countries and a positive 0.77 percent for the lower tax rate countries. Thus, unemployment increased more rapidly in the higher tax rate countries. The changes in unemployment of the higher and lower tax rate countries were significantly different in the second and third time periods.

Gross savings is defined as gross disposable income less final consumption expenditures. Exhibit 8 shows the gross savings as percent of GDP by country by year for 2005 to 2007. The date for 2008 was unavailable at the time of this writing. As shown, the gross savings rate increased slightly from an average of 24.26 percent in 2005 to 26.59 percent in 2007. Exhibit 9 shows the gross savings rate by country by year, and split into two groups. The countries with the higher combined income tax are compared to the countries with the lower combined income tax. Higher savings rates were found in all three years for the lower tax rate countries, but the difference were not significant.

Exhibit 10 shows the percent change in the savings rate (gross savings as a percent of GDP) by country by year, and split into two groups. The countries with the higher combined income tax are compared to the countries with the lower combined income tax. During 2005 to 2006, the change in the savings rate was 8.99 percent for the higher tax rate countries and 8.96 percent for the lower tax rate countries. During 2006 to 2007, the change in the savings rate was 5.68 percent for the higher tax rate countries and 9.60 percent for the lower tax rate countries. The difference between the groups was significant in the second time period.

CONCLUSIONS

This study examines the relationship between tax rates in selected countries and economic activity, including GDP growth, unemployment, and savings. The sample of countries used in the study consists of the Organization of Economic Cooperation and Development (OECD) countries. This study provides some background information regarding the OECD. This study also offers a brief review of past research concerning taxation and its impact on economic activity.

During the time period of the study, 2005 to 2008, average GDP increased from $1,184 billion to $1,455 billion. When comparing the higher tax rate countries to lower tax rate countries, average increase in GDP was higher for the lower tax rate countries. Over the time period of the study, average unemployment decreased from 7.05 percent in 2005 to 5.76 percent in 2008. When comparing the higher tax rate countries to lower tax rate countries, average percent change in the unemployment rate was more favorable for the lower tax rate countries than the higher tax rate countries. During the time period of the study, the average gross savings rate increased from 24.26 percent to 26.50 percent. Compared to higher tax rate countries, lower tax rate countries experienced a significantly higher proportionate increase in the gross savings rate.

Results are mixed but reveal some meaningful relationships between tax rates and economic activity. Generally lower tax rate countries have experienced more favorable economic activity, at least regarding the variable examined in this study, than higher tax rate countries. At the macro level, these relationships should be considered by policy makers who are considering changes to tax laws. At the micro level, these relationships should be considered by corporate managers who are making decisions on where to set up business operations. The two levels are plainly connected, as macro level decisions of policy makers will affect the micro level decisions of corporate managers.

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Lawrence C. Smith, Jr., Louisiana Tech University (Retired)

L. Murphy Smith, Texas A&M University

William C. Gruben, Texas A&M International University

Exhibit 1: OECD Member Countries

Founding members (1961):

Austria                             Luxembourg
Belgium                             Netherlands
Canada                              Norway
Denmark                             Portugal
France                              Spain
Germany                             Sweden
Greece                              Switzerland
Iceland                             Turkey *
Ireland                             United Kingdom
Italy                               United States

Admitted later (listed chronologically with year of admission):

Japan (1964)                        Czech Republic (1995)
Finland (1969)                      Hungary (1996)
Australia (1971)                    Poland * (1996)
New Zealand (1973)                  Republic of Korea (1996)
Mexico * (1994)                     Slovakia (2000)

Note: Currently there are 30 full members of the OECD. Among these,
Mexico, Poland and Turkey (identified with *) are characterized as
upper middle-income economies by the World Bank. The other 27 members
are characterized as high-income economies.

Exhibit 2: Income Tax Rates and Nominal GDP in US$ by Country by Year

                         Federal
                         Corporate    Top State    Combined
                         Income Tax   Corporate    Federal and
                         Rate         Income Tax   State Rate
Rank    Country          Adjusted     Rate         (Adjusted)

   1    Japan                30         11.56         39.54
   2    United States        35          6.57         39.27
   3    Germany            26.38          17          38.9
   4    Canada              22.1          14          36.1
   5    France             34.43          0           34.4
   6    Belgium            33.99          0           33.99
   7    Italy                33           0            33
   8    New Zealand          33           0            33
   9    Spain               32.5          0           32.5
  10    Luxembourg         22.88         7.5          30.38
  11    Australia            30           0            30
  12    United Kingdom       30           0            30
  13    Mexico               28           0            28
  14    Norway               28           0            28
  15    Sweden               28           0            28
  16    Korea                25          2.5          27.5
  17    Portugal             25          1.5          26.5
  18    Finland              26           0            26
  19    Netherlands         25.5          0           25.5
  20    Austria              25           0            25
  21    Denmark              25           0            25
  22    Greece               25           0            25
        Czech
  23    Republic             24           0            24
  24    Switzerland          8.5        14.64         21.32
  25    Hungary              20           0            20
  26    Turkey               20           0            20
  27    Poland               19           0            19
        Slovak
  28    Republic             19           0            19
  29    Iceland              18           0            18
  30    Ireland             12.5          0           12.5

        AVERAGE            25.49         2.51         27.65

                         GDP          GDP          GDP
                         Nominal -    Nominal -    Nominal -
Rank    Country          US$ Yr1      US$ Yr2      US$ Yr3

   1    Japan             4,552.19     4,362.58     4,380.39
   2    United States    12,638.38    13,398.93    14,077.65
   3    Germany           2,793.23     2,919.51     3,328.18
   4    Canada            1,133.76     1,277.56     1,427.19
   5    France            2,147.76     2,270.35     2,597.70
   6    Belgium             376.99       400.30       459.03
   7    Italy             1,780.78     1,865.11     2,117.52
   8    New Zealand         109.49       106.11       129.00
   9    Spain             1,132.13     1,235.92     1,442.91
  10    Luxembourg           37.67        42.59        49.72
  11    Australia           713.21       755.20       910.33
  12    United Kingdom    2,282.89     2,442.95     2,800.11
  13    Mexico              849.03       952.34     1,025.43
  14    Norway              302.01       336.73       388.48
  15    Sweden              366.01       393.15       453.32
  16    Korea               844.87       951.77     1,049.24
  17    Portugal            185.77       195.19       223.66
  18    Finland             195.67       209.71       246.25
  19    Netherlands         639.58       678.32       779.43
  20    Austria             303.45       321.65       371.14
  21    Denmark             257.68       273.87       310.06
  22    Greece              246.22       267.71       312.75
        Czech
  23    Republic            124.55       142.61       174.22
  24    Switzerland         372.48       391.23       434.09
  25    Hungary             110.20       113.01       138.76
  26    Turkey              482.69       529.19       649.13
  27    Poland              303.98       341.67       425.32
        Slovak
  28    Republic             47.98        56.00        75.21
  29    Iceland              16.30        16.65        20.32
  30    Ireland             201.93       221.95       260.08

        AVERAGE           1,184.96     1,249.00     1,368.55

                         GDP
                         Nominal -
Rank    Country          US$ Yr4

   1    Japan             4,910.69
   2    United States    14,441.43
   3    Germany           3,673.11
   4    Canada            1,499.55
   5    France            2,866.95
   6    Belgium             506.18
   7    Italy             2,313.89
   8    New Zealand         128.41
   9    Spain             1,601.96
  10    Luxembourg           54.97
  11    Australia         1,013.46
  12    United Kingdom    2,680.00
  13    Mexico            1,088.13
  14    Norway              451.83
  15    Sweden              478.96
  16    Korea               929.12
  17    Portugal            244.64
  18    Finland             271.87
  19    Netherlands         876.97
  20    Austria             414.83
  21    Denmark             340.03
  22    Greece              357.55
        Czech
  23    Republic            216.35
  24    Switzerland         500.26
  25    Hungary             155.93
  26    Turkey              729.98
  27    Poland              527.87
        Slovak
  28    Republic             95.40
  29    Iceland              16.79
  30    Ireland             267.58

        AVERAGE           1,455.16

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008

Sources: The Tax Foundation 2008; OECD 2010.

Exhibit 3: Change in GDP by Country by Year

                          Combined          GDP
                          Federal and       Constant -
                          State Rate        % Change,
Rank    Country           (Adjusted)        Yr1 to Yr2

   1    Japan                  39.54           (4.17)
   2    United States          39.27            6.02
   3    Germany                38.9             4.52
   4    Canada                 36.1            12.68
   5    France                 34.4             5.71
   6    Belgium                33.99            6.18
   7    Italy                   33              4.74
   8    New Zealand             33             (3.09)
   9    Spain                  32.5             9.17
  10    Luxembourg             30.38           13.07
  11    Australia               30              5.89
  12    United Kingdom          30              7.01
  13    Mexico                  28             12.17
  14    Norway                  28             11.50
  15    Sweden                  28              7.42
  16    Korea                  27.5            12.65
  17    Portugal               26.5             5.07
  18    Finland                 26              7.17
  19    Netherlands            25.5             6.06
  20    Austria                 25              6.00
  21    Denmark                 25              6.28
  22    Greece                  25              8.73
  23    Czech Republic          24             14.50
  24    Switzerland            21.32            5.04
  25    Hungary                 20              2.55
  26    Turkey                  20              9.63
  27    Poland                  19             12.40
  28    Slovak Republic         19             16.71
  29    Iceland                 18              2.11
  30    Ireland                12.5             9.92

        AVERAGE                27.65            7.45

                          GDP               GDP
                          Constant -        Constant - %
                          % Change,         Change, Yr3
Rank    Country           Yr2 to Yr3        to Yr4

   1    Japan                   0.41            12.11
   2    United States           5.07             2.58
   3    Germany                14.00            10.36
   4    Canada                 11.71             5.07
   5    France                 14.42            10.36
   6    Belgium                14.67            10.27
   7    Italy                  13.53             9.27
   8    New Zealand            21.57            (0.45)
   9    Spain                  16.75            11.02
  10    Luxembourg             16.74            10.56
  11    Australia              20.54            11.33
  12    United Kingdom         14.62            (4.29)
  13    Mexico                  7.67             6.11
  14    Norway                 15.37            16.31
  15    Sweden                 15.30             5.66
  16    Korea                  10.24           (11.45)
  17    Portugal               14.59             9.38
  18    Finland                17.43            10.40
  19    Netherlands            14.91            12.51
  20    Austria                15.39            11.77
  21    Denmark                13.22             9.66
  22    Greece                 16.82            14.32
  23    Czech Republic         22.16            24.19
  24    Switzerland            10.95            15.24
  25    Hungary                22.79            12.38
  26    Turkey                 22.66            12.46
  27    Poland                 24.48            24.11
  28    Slovak Republic        34.30            26.86
  29    Iceland                22.05           (17.37)
  30    Ireland                17.18             2.88

        AVERAGE                16.05             9.12

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008

Exhibit 4: Percent Change in GDP by Country by Year Grouped by High/
Low Tax Rates

                          Combined      GDP
                          Federal and   Constant -
                          State Rate    % Change,
Rank    Country           (Adjusted)    Yr1 to Yr2

   1    Japan                39.54           (4.17)
   2    United States        39.27            6.02
   3    Germany              38.9             4.52
   4    Canada               36.1            12.68
   5    France               34.4             5.71
   6    Belgium              33.99            6.18
   7    Italy                 33              4.74
   8    New Zealand           33             (3.09)
   9    Spain                32.5             9.17
  10    Luxembourg           30.38           13.07
  11    Australia             30              5.89
  12    United Kingdom        30              7.01
  13    Mexico                28             12.17
  14    Norway                28             11.50
  15    Sweden                28              7.42

        AVERAGE              33.01            6.58

  16    Korea                27.5            12.65
  17    Portugal             26.5             5.07
  18    Finland               26              7.17
  19    Netherlands          25.5             6.06
  20    Austria               25              6.00
  21    Denmark               25              6.28
  22    Greece                25              8.73
  23    Czech Republic        24             14.50
  24    Switzerland          21.32            5.04
  25    Hungary               20              2.55
  26    Turkey                20              9.63
  27    Poland                19             12.40
  28    Slovak Republic       19             16.71
  29    Iceland               18              2.11
  30    Ireland              12.5             9.92

        AVERAGE              22.29            8.32

                          GDP           GDP
                          Constant -    Constant - %
                          % Change,     Change, Yr3
Rank    Country           Yr2 to Yr3    to Yr4

   1    Japan                   0.41         12.11
   2    United States           5.07          2.58
   3    Germany                14.00         10.36
   4    Canada                 11.71          5.07
   5    France                 14.42         10.36
   6    Belgium                14.67         10.27
   7    Italy                  13.53          9.27
   8    New Zealand            21.57         (0.45)
   9    Spain                  16.75         11.02
  10    Luxembourg             16.74         10.56
  11    Australia              20.54         11.33
  12    United Kingdom         14.62         (4.29)
  13    Mexico                  7.67          6.11
  14    Norway                 15.37         16.31
  15    Sweden                 15.30          5.66

        AVERAGE                13.49          7.75

  16    Korea                  10.24        (11.45)
  17    Portugal               14.59          9.38
  18    Finland                17.43         10.40
  19    Netherlands            14.91         12.51
  20    Austria                15.39         11.77
  21    Denmark                13.22          9.66
  22    Greece                 16.82         14.32
  23    Czech Republic         22.16         24.19
  24    Switzerland            10.95         15.24
  25    Hungary                22.79         12.38
  26    Turkey                 22.66         12.46
  27    Poland                 24.48         24.11
  28    Slovak Republic        34.30         26.86
  29    Iceland                22.05        (17.37)
  30    Ireland                17.18          2.88

        AVERAGE                 18.61        10.49

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008

Exhibit 5: Tax and Unemployment Rates by Country by Year

                          Combined
                          Federal and
                          State Rate    Unemployment   Unemployment
Rank    Country           (Adjusted)      Rate Yr1       Rate Yr2

1       Japan                39.54             4.40           4.10
2       United States        39.27             5.10           4.60
3       Germany              38.9             11.10          10.30
4       Canada               36.1              6.80           6.30
5       France               34.4              8.90           8.80
6       Belgium              33.99             8.50           8.30
7       Italy                 33               7.70           6.80
8       New Zealand           33               3.80           3.80
9       Spain                32.5              9.20           8.51
10      Luxembourg           30.38               na             na
11      Australia             30               5.00           4.80
12      United Kingdom        30               4.60           5.40
13      Mexico                28               3.51           3.16
14      Norway                28               4.60           3.40
15      Sweden                28               6.00           5.40
16      Korea                27.5              3.70           3.50
17      Portugal             26.5              7.60           7.70
18      Finland               26               8.30           7.70
19      Netherlands          25.5              5.10           4.20
20      Austria               25               5.20           4.70
21      Denmark               25               5.00           4.10
22      Greece                25               9.60           8.80
23      Czech Republic        24               7.90           7.10
24      Switzerland          21.32             4.40           4.00
25      Hungary               20               7.20           7.50
26      Turkey                20              10.30           9.90
27      Poland                19              17.70          13.80
28      Slovak Republic       19              16.20          13.30
29      Iceland               18               2.60           2.90
30      Ireland              12.5              4.30           4.00

        AVERAGE              27.65             7.05           6.44

        Unemployment   Unemployment
Rank    ent Rate Yr3     Rate Yr4

1              3.90           4.00
2              4.60           5.80
3              8.60           7.50
4              6.00           6.10
5              8.00           7.40
6              7.50           7.00
7              6.10           6.70
8              3.70           4.20
9              8.30          11.34
10               na           4.80
11             4.40           4.20
12             5.30           5.30
13             3.39           3.50
14             2.50           2.60
15             6.10           6.20
16             3.20           3.20
17             8.00           7.60
18             6.80           6.40
19             3.50           3.00
20             4.40           3.80
21             4.00           3.40
22             8.10           7.20
23             5.30           4.40
24             3.60           3.40
25             7.40           7.80
26            10.30          11.00
27             9.60           7.10
28            11.00           9.60
29             2.30           3.00
30             4.00           5.20

               5.86           5.76

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008

Exhibit 6: Percent Change in Unemployment Rate by Country by Year

                          Combined             % Change
                          Federal and       in Unemployment
                          State Rate             Rate
Rank    Country           (Adjusted)          Yr1 to Yr2

   1    Japan                  39.54                (6.82)
   2    United States          39.27                (9.80)
   3    Germany                38.9                 (7.21)
   4    Canada                 36.1                 (7.35)
   5    France                 34.4                 (1.12)
   6    Belgium                33.99                (2.35)
   7    Italy                   33                 (11.69)
   8    New Zealand             33                   0.00
   9    Spain                  32.5                 (7.50)
  10    Luxembourg             30.38                  N/A
  11    Australia               30                  (4.00)
  12    United Kingdom          30                   17.39
  13    Mexico                  28                  (9.84)
  14    Norway                  28                 (26.09)
  15    Sweden                  28                 (10.00)
  16    Korea                  27.5                 (5.41)
  17    Portugal               26.5                  1.32
  18    Finland                 26                  (7.23)
  19    Netherlands            25.5                (17.65)
  20    Austria                 25                  (9.62)
  21    Denmark                 25                 (18.00)
  22    Greece                  25                  (8.33)
  23    Czech Republic          24                 (10.13)
  24    Switzerland            21.32                (9.09)
  25    Hungary                 20                   4.17
  26    Turkey                  20                  (3.88)
  27    Poland                  19                 (22.03)
  28    Slovak Republic         19                 (17.90)
  29    Iceland                 18                  11.54
  30    Ireland                12.5                 (6.98)

        AVERAGE                27.65                (7.09)

                             % Change          % Change
                          in Unemployment   in Unemployment
                               Rate              Rate
Rank    Country             Yr2 to Yr3        Yr3 to Yr4

   1    Japan                     (4.88)             2.56
   2    United States              0.00             26.09
   3    Germany                  (16.50)           (12.79)
   4    Canada                    (4.76)             1.67
   5    France                    (9.09)            (7.50)
   6    Belgium                   (9.64)            (6.67)
   7    Italy                    (10.29)             9.84
   8    New Zealand               (2.63)            13.51
   9    Spain                     (2.47)            36.63
  10    Luxembourg                  N/A               N/A
  11    Australia                 (8.33)            (4.55)
  12    United Kingdom            (1.85)             0.00
  13    Mexico                     7.18              3.42
  14    Norway                   (26.47)             4.00
  15    Sweden                    12.96              1.64
  16    Korea                     (8.57)             0.00
  17    Portugal                   3.90             (5.00)
  18    Finland                  (11.69)            (5.88)
  19    Netherlands              (16.67)           (14.29)
  20    Austria                   (6.38)           (13.64)
  21    Denmark                   (2.44)           (15.00)
  22    Greece                    (7.95)           (11.11)
  23    Czech Republic           (25.35)           (16.98)
  24    Switzerland              (10.00)            (5.56)
  25    Hungary                   (1.33)             5.41
  26    Turkey                     4.04              6.80
  27    Poland                   (30.43)           (26.04)
  28    Slovak Republic          (17.29)           (12.73)
  29    Iceland                  (20.69)            30.43
  30    Ireland                    0.00             30.00

        AVERAGE                   (7.85)             0.49

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008

Exhibit 7: Percent Change in Unemployment by Country by Year--Grouped
by High/Low Tax Rates

                          Combined         % Change
                          Federal and   in Unemployment
                          State Rate         Rate
Rank    Country           (Adjusted)      Yr1 to Yr2

   1    Japan                39.54              (6.82)
   2    United States        39.27              (9.80)
   3    Germany              38.9               (7.21)
   4    Canada               36.1               (7.35)
   5    France               34.4               (1.12)
   6    Belgium              33.99              (2.35)
   7    Italy                 33               (11.69)
   8    New Zealand           33                 0.00
   9    Spain                32.5               (7.50)
  10    Luxembourg           30.38                N/A
  11    Australia             30                (4.00)
  12    United Kingdom        30                17.39
  13    Mexico                28                (9.84)
  14    Norway                28               (26.09)
  15    Sweden                28               (10.00)
  16    Korea                27.5               (5.41)
  17    Portugal             26.5                1.32
  18    Finland               26                (7.23)
  19    Netherlands          25.5              (17.65)
  20    Austria               25                (9.62)
  21    Denmark               25               (18.00)
  22    Greece                25                (8.33)
  23    Czech Republic        24               (10.13)
  24    Switzerland          21.32              (9.09)
  25    Hungary               20                 4.17
  26    Turkey                20                (3.88)
  27    Poland                19               (22.03)
  28    Slovak Republic       19               (17.90)
  29    Iceland               18                11.54
  30    Ireland              12.5               (6.98)

        AVERAGE              27.65              (7.09)

                             % Change          % Change
                          in Unemployment   in Unemployment
                               Rate              Rate
Rank    Country             Yr2 to Yr3        Yr3 to Yr4

   1    Japan                     (4.88)             2.56
   2    United States              0.00             26.09
   3    Germany                  (16.50)           (12.79)
   4    Canada                    (4.76)             1.67
   5    France                    (9.09)            (7.50)
   6    Belgium                   (9.64)            (6.67)
   7    Italy                    (10.29)             9.84
   8    New Zealand               (2.63)            13.51
   9    Spain                     (2.47)            36.63
  10    Luxembourg                  N/A               N/A
  11    Australia                 (8.33)            (4.55)
  12    United Kingdom            (1.85)             0.00
  13    Mexico                     7.18              3.42
  14    Norway                   (26.47)             4.00
  15    Sweden                    12.96              1.64
  16    Korea                     (8.57)             0.00
  17    Portugal                   3.90             (5.00)
  18    Finland                  (11.69)            (5.88)
  19    Netherlands              (16.67)           (14.29)
  20    Austria                   (6.38)           (13.64)
  21    Denmark                   (2.44)           (15.00)
  22    Greece                    (7.95)           (11.11)
  23    Czech Republic           (25.35)           (16.98)
  24    Switzerland              (10.00)            (5.56)
  25    Hungary                   (1.33)             5.41
  26    Turkey                     4.04              6.80
  27    Poland                   (30.43)           (26.04)
  28    Slovak Republic          (17.29)           (12.73)
  29    Iceland                  (20.69)            30.43
  30    Ireland                    0.00             30.00

        AVERAGE                   (7.85)             0.49

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 =2008

Exhibit 8: Tax and Gross Savings as a % of GDP by Country by Year

                           Combined      Gross      Gross      Gross
                          Federal and   Savings    Savings    Savings
                          State Rate    as % of    as % of    as % of
Rank    Country           (Adjusted)    GDP Yr1    GDP Yr2    GDP Yr3

1       Japan                39.54       25.08      24.91      24.88
2       United States        39.27       14.11      15.19      14.21
3       Germany              38.9        23.46      25.31      27.90
4       Canada               36.1        26.23      27.63      27.68
5       France               34.4        20.46      21.51      22.28
6       Belgium              33.99       23.13      24.58      25.60
7       Italy                 33         22.47      22.80      23.50
8       New Zealand           33
9       Spain                32.5        31.17      32.15      31.98
10      Luxembourg           30.38
11      Australia             30         20.80      22.02
12      United Kingdom        30         14.61      14.54      15.55
13      Mexico                28
14      Norway                28         34.51      39.04      39.97
15      Sweden                28         25.04      29.16      32.21
16      Korea                27.5        31.95      30.71      31.36
17      Portugal             26.5        14.90      14.09      15.01
18      Finland               26         26.97      28.49      31.43
19      Netherlands          25.5        30.34      34.38      35.11
20      Austria               25         27.18      27.65      29.37
21      Denmark               25         28.24      28.86      27.52
22      Greece                25         12.33      13.81
23      Czech Republic        24         27.15      27.79      29.62
24      Switzerland          21.32       36.79      38.15
25      Hungary               20         21.17      23.03      25.52
26      Turkey                20
27      Poland                19         20.46      20.81      22.93
28      Slovak Republic       19         25.19      26.15      29.49
29      Iceland               18
30      Ireland              12.5        22.87      24.56      21.91

        AVERAGE              27.65       24.26      25.49      26.59

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008 - not available.

Exhibit 9: Tax and Gross Savings as a % of GDP by Country by
Year--Grouped by High/Low Tax Rates

                           Combined      Gross      Gross      Gross
                          Federal and   Savings    Savings    Savings
                          State Rate    as % of    as % of    as % of
Rank    Country           (Adjusted)    GDP Yr1    GDP Yr2    GDP Yr3

1       Japan                39.54       25.08      24.91      24.88
2       United States        39.27       14.11      15.19      14.21
3       Germany              38.9        23.46      25.31      27.90
4       Canada               36.1        26.23      27.63      27.68
5       France               34.4        20.46      21.51      22.28
6       Belgium              33.99       23.13      24.58      25.60
7       Italy                 33         22.47      22.80      23.50
8       New Zealand           33
9       Spain                32.5        31.17      32.15      31.98
10      Luxembourg           30.38
11      Australia             30         20.80      22.02
12      United Kingdom        30         14.61      14.54      15.55
13      Mexico                28
14      Norway                28         34.51      39.04      39.97
15      Sweden                28         25.04      29.16      32.21

        AVERAGE              33.01       23.42      24.90      25.90

16      Korea                27.5        31.95      30.71      31.36
17      Portugal             26.5        14.90      14.09      15.01
18      Finland               26         26.97      28.49      31.43
19      Netherlands          25.5        30.34      34.38      35.11
20      Austria               25         27.18      27.65      29.37
21      Denmark               25         28.24      28.86      27.52
22      Greece                25         12.33      13.81
23      Czech Republic        24         27.15      27.79      29.62
24      Switzerland          21.32       36.79      38.15
25      Hungary               20         21.17      23.03      25.52
26      Turkey                20
27      Poland                19         20.46      20.81      22.93
28      Slovak Republic       19         25.19      26.15      29.49
29      Iceland               18
30      Ireland              12.5        22.87      24.56      21.91

        AVERAGE              22.29       25.04      26.04      27.21

DATES: YR1 = 2005 YR2 = 2006 YR3 = 2007 YR4 = 2008 - not available.

Exhibit 10: Percent Change in Gross Savings as a % of GDP
by Country by Year
Grouped by High/Low Tax Rates

                          Combined      % Change In
                          Federal end   Gross         % Change In
                          State Rate    Savings       Gross Savings
Rank    Country           (Adjusted)    Yr1 to Yr2    Yr2 to Yr3

1       Japan                39.54            1.36            2.21
2       United States        39.27           10.49           -4.42
3       Germany              38.9            11.35           12.97
4       Canada               36.1             8.34            2.69
5       France               34.4             7.66            5.94
6       Belgium              33.99            9.46            6.84
7       Italy                 33              3.57            4.68
8       New Zealand           33               N/A             N/A
9       Span                 32.5             7.28            3.02
10      Luxembourg           30.38             N/A             N/A
11      Australia             30              8.89             N/A
12      United Kingdom        30              2.33            9.68
13      Mexico                28               N/A             N/A
14      Norway                28             15.72            5.58
15      Sweden                28             21.40           13.28

        AVERAGE              33.01             8.99            6.68

16      Korea                27.5             1.09            7.35
17      Portugal             26.5            -4.14            8.57
18      Finland               26             10.81           14.98
19      Netherlands          25.5            17.17            5.80
20      Austria               25              5.25            9.98
21      Denmark               25              5.62           -3.08
22      Greece                25             17.04             N/A
23      Czech Republic        24              9.33           13.09
24      Switzerland          21.32            7.47             N/A
25      Hungary               20             13.01           12.19
26      Turkey                20               N/A             N/A
27      Poland                19              8.06           17.62
28      Slovak Republic       19             12.65           24.52
29      Iceland               18               N/A             N/A
30      Ireland              12.5            13.13           -5.39

        AVERAGE              22.29             8.96            9.60

DATES: YR1 = 2006 YR2 = 2006 YR3 = 2007 YR4 = 2008 - Not Available.