June 20, 2011

Gooooooaaaaaaaallllll!!!!! Supply-Side Economics, 1; Missouri, Nil

As Americans, we often don’t enjoy hearing how some country in Europe is doing something better than the United States. We certainly don’t like hearing how European football stars are better athletes than our own players. All grudges aside, though, an interesting study detailed in the June 20 edition of the National Review suggests that American government could learn a thing or two from studying European soccer leagues.

In his article “Supply-Side Soccer,” economist Kevin A. Hassett describes the findings of a new study published by the National Bureau of Economic Research, “Taxation and International Migration of Superstars: Evidence from the European Football Market.” The report, by economists Henrik Kleven, Camille Landais, and Emmanuel Saez, studied the top soccer clubs in 14 European countries from 1980 to the present, exploring how changes in tax rates affected players changing teams, and to what extent player mobility affected club performance.

To break the results down simply, countries such as Spain, which lowered income taxes for the highest tax brackets, ended up attracting the best players. This, in turn, led to higher performance in the European soccer leagues. In order to compete with the lower-taxing countries’ offers, high-tax-bracket countries would have to offer much larger salaries for the players to obtain equal standards of living.

At the end of his article, Hassett points out that this same principle stays true for business climates between political jurisdictions. This is a point that Missouri should take under advisement, for businesses often follow the same trends between states.

As seen in the Show-Me Institute case study examining the differences in tax policy between Tennessee and Missouri, while Missouri instituted and then raised an income tax, our southeastern neighbor remained income-tax free. The study found that this difference in policy is positively correlated with Tennessee, historically our economic lesser, rising above us in terms of population and economic prosperity.

Attracting new business is a crucial part of ensuring future economic prosperity, and revitalizing the economy. Instead of offering giant multi-million-dollar tax credits to developers or specific businesses in efforts that rarely if ever deliver on their hoped-for success, why not cut taxes across the board to create a climate conducive to all businesses?

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