Monday Norway Blogging

Brad DeLong finds a new problem with everyone's favorite macroeconomic chart -- not only has the line been incorrectly drawn through Norway rather than to fit the data points, they haven't even plotted Norway correctly:

The revenues plotted on the vertical scale include oil excise taxes levied on corporations. The tax rates plotted on the horizontal scale do not--hence the Norway "tax rate" of 28% rather than the correct 52%.

In short, in non-Norway countries, tax revenues rise with tax rates across the range of rates actual countries apply (I think one should concede that, in principle, a tax rate could be so confiscatory as to decrease revenues; the question is whether we are actually anyway in that neighborhood) and this exact same pattern holds in Norway as well.

Comments

This Norway oddity will disappear in a few years. Their North Sea oil production, just like Britain's, is collapsing.

Monthly world oil production has not exceeded the output of June 05. when it was in the $30 area. The doubling of price has cushioned, and then some, the plunge in their production volumes. With their outputs dropping 15% a year or so that won't go on forever or even much longer. Well unless the oil price enters the three digit area.

Posted by rapier | July 16, 2007 8:16 AM

I liked this post better when it was "Monday Finland Blogging". It had a nice touch of misdirection to it.

Posted by otto | July 16, 2007 9:22 AM

And the Norwegians, alone among oil producing countries, have recognized that oil wealth is temporary and have saved it for future generations instead of squandering it. See, e.g., http://www.slate.com/id/2108873/

"1990, the nation's parliament set up the Petroleum Fund of Norway to function as a fiscal shock absorber. Run under the auspices of the country's central bank, the fund, like the Alaska Fund, converts petrodollars into stocks and bonds. But instead of paying dividends, it uses revenues and appreciation to ensure the equitable distribution of wealth across generations."

Compare that to our country. When we put aside cash to pay for future Social Security payments, what did we get? An administration set on looting the money to pay for current tax cuts for the rich.

Posted by Bloix | July 16, 2007 9:53 AM

Has the Wall Street Journal ran a retraction/correction? Anyone think they will?

Posted by Steve | July 16, 2007 10:02 AM

Yeah, with all the attention that this has gotten on the internet, did the WSJ even bother with a retraction?

Posted by golddog | July 16, 2007 11:44 AM

I still think the best part of that "curve" is the fact that if you extend it to intercept the X-axis (i.e. the point where the tax rate is so onerous it generates no revenue) it hits at a rate LESS than what seven countries currently charge. You would have thought they might have tried to smooth it out a bit so the obvious fallacies wouldn't be so evident.

Posted by Col Bat Guano | July 16, 2007 2:06 PM

Here is the chart for corportate taxes with norway removed.

http://www.poorandstupid.com/2007_07_15_chronArchive.asp#8552863794098008868

Matt needs to stop commenting on topics he doesn't udnerstand.

Posted by Dave | July 16, 2007 3:27 PM

Well, things can only go up following a comment by that moron Luskin, but I assume that the aythor of this chart must be a former student of Larry Kudlow. And prsto, I gop to idiot Luskin's link above, and who do I see but the p.r. man for the securities industry himself.

Posted by Gene | July 16, 2007 3:33 PM

Dave, that curve could quite possibly be worse.

It explicitly removes various unnamed "tiny economies" in the EU, and then draws a correlation pretty much based only on the small economy of Ireland. It will have a horrible R^2 value.

In addition, that curve suggests you have higher tax revenue at 0% tax rate than 30%, which makes absolutely no sense.

Nice condescension though.

Posted by Harry | July 16, 2007 4:32 PM