Estonia: Propelled by Economic Freedom

Received via email (h/t: Charles)
Author unknown

Twelve years ago, Estonia, the little Baltic country that had been under Soviet domination for so long and which chafed badly to become a free market proponent after seeing how badly collectivist thinking had served the people, became the first country to adopt a perfectly flat tax rate.

The tax started at 26%, fell to 22% as the revenues taken in at the first rate were far above expectations so the authorities thought it wise to cut the rate, expecting to take in less revenues whilst still balancing the budget. They were wrong in doing so, for at 22% they began to take in more than they were taking in at 26%, and so they are cutting it to 20% in '09.

Estonia is booming. Immediately after the fall of the Soviet Union, Estonia's average per capita income was 35% of that of its European neighbours. Now, Estonians are [near] parity with western Europeans, and the economy is growing at more than 10%! Given this booming economy and low, flat tax rate, foreign companies are flocking to Estonia. Microsoft, 3M, Bristol-Meyers Squibb, and Johnson & Johnson have all moved facilities there, and direct foreign investment in Estonia is now 20% of GDP. As a result, tax revenues are moving up even more swiftly than the GDP can grow. Hear, Washington, Oh, Hear!

See Rankings: 2007 World Economic Freedom Report at Opinion Journal