More than 70% of the world's population lives in developing or undeveloped countries, commonly referred to as Third World. Over a billion people live at $ 2 a day or less that is insufficient for economic survival.
The IMF and the World Bank have for the last 25 years played a prominent role in the economies of most poor countries, especially in Africa and South America, following the debt crisis started in 1982 by the Mexican economy.
The International Monetary Fund has in particular forced many people to perform painful reforms such as depreciation, privatization, elimination, distance of funding funds and countless others. The goal was not only to restore the economies of these countries soon but also to a high-growth engineer who would lift these countries out of poverty. At a later date, however, they have not been successful.
Was this policy not good? Indeed, they were, in most cases, either poorly executed by unenthusiastic governments or applied in the wrong period. And because they thought of great pain, resistance to more reforms increased. Follow-up reforms had to be either jettisoned or postponed. The majority of experts have come to the conclusion that improvements that have been made over the last 20 years have not led to any appreciable benefits to the majority of these countries, and the Bretton Wood agencies have only helped to improve the situation. Their goal of lifting many of poverty has been considered a failure
What policy should Bretton Wood agencies be encouraged to boost economic growth if any? There is a low tax.
Small income and corporate taxes have been proven not only to boost economic growth but also to increase government revenue. How can this be?
Low taxes encourage investment both domestically and abroad. These two are very important, especially the latter, as these poor countries have low savings and need a lot of investment to grow. Foreign assets and financial institutions generally increase the total investment ratio relative to GDP.
Businessman loves low business tax. This is basically the reason for increased investment. The interest rates should be low around and not just targeted at some policy areas. This will prove useful especially in service industries that are usually neglected in tax deductions.
Small income tax not only affects economic growth but also taxation. It updates this by changing consistency. The lower the proportion, the higher the average, because people are more interested in paying lower interest rates. In Russia, when the government reduced both income and corporate taxes to a maximum of 13% and 24% respectively, government revenue rose by 40%.
Increase in tax revenues is welcome as this will improve the position of the Treasury, which in most cases is red and, consequently, reduces its borrowing. On the other hand, the reduction in loans will lead to a reduction in interest rates which will then lead to increased lending to the private sector and the corresponding positive impact on the economy.
Although a lot of light has been spent on low corporate tax, this should not be negative to positively affect the income tax rate.
Low income taxes increase spending and savings. It also has the benefit of bringing many employees so far to work in informal sectors in the formal economy. When tax cuts were in Russia, many employees of their companies appeared to regulate their activities with the government as it would enable them (employees) to access credit from banks and other financial institutions.
Also, increased spending helps to increase GDP. In the development area, consumption expenditure is the main growth of growth, which places more than 60% on the US economy. It is playing an increased role in many developing countries today.
Also, an increase in savings is also welcome. This will increase the amount of capital for investments where driving grows. It will also lead to a reduction in interest rates with obvious benefits.
Ireland is the latest example of a country that has used low taxes to boost economic growth. It is usually referred to as a Celtic tiger with regard to the tiger growth she has enjoyed for many years. This has facilitated poverty and the high unemployment rate for which it has long been linked.
The current tax rate of 12.5% is the second lowest in the European Union and one of the lowest in the world. Earnings per capita around $ 40,000 are the highest in the EU. And worth noting is that in 1994 the country had been depreciated! This is what low taxes can do.
Many countries around the world are now following this example, especially Central Europe with Estonia, Slovakia and Cyprus are prime ministers. Low rates have gone a long way in making these countries an investment area in Europe. There is no reason why this model can not be implemented in other parts of the world, especially Africa and South America, where they are only needed.