Economic Downturn
Brian Ribbans
Econ 220-F1FF
Professor Jodi Miller
7/21/12

Economic Downturn 4-1 Economic downturns are an inevitable part of a healthy economy. The severity of a downturn is in large part determined by the country’s economic policies implemented by its government. The governments that keep taxation and regulation low have economies that tend to be more resilient to economic downturns. Those that have high taxes and more government programs tend to have stagnated economies. An example of government with low taxation is Singapore whose GDP per capita is one of the largest in the world has extremely low taxes. The per capita in Singapore as of 2011 is 50,324 with an unemployment rate of 2% that ranks among the best in the industrialized world. This is due in large part to the tax policy put in place for both individuals and corporations. The corporate tax rate is capped at 17% and the individual tax rate is capped at 20% which has help Singapore from feeling the effects of the global recession. This is in stark contrast to most European countries and to a lesser extent the United States. Most European countries have created a large welfare state, which has stagnated their economies because somebody has to pay for them. The only way to pay for these programs with an economy that is not growing is to increase taxes. When a government increases taxes economies have a hard time growing because what companies tend to not like to lose money so they avoid this by not expanding their business in places that where taxes are high. Instead, they invest where they will likely make more money.
The United States is currently going through this debate on how to grow the economy. On one hand one party want to increase taxes to pay for increasing government and you have another who runs on cutting taxes and spending but does not always actually do this when elected. The truth is government spending has never been cut it just has been reduced from the yearly increases.