Paul Krugman and The Economic Growth of Scotland

The second lecture in the Allander Series was delivered in Edinburgh last week by Paul Krugman. Sadly there are less comprehensive notes [PDF] available online than were made available for William Baumol's presentation a couple of weeks ago but the essence of his thoughts seems to be a "second wind" the fundamentals of which would be

  • education
  • entrepreneurship culture
  • infrastructure
Krugman agreed it was important not to be seen as a high tax economy but advocated against a tax cutting policy to attract and encourage growth. The Scotsman said,
"From the experience of the US, I would say the costs outweigh the benefits. You might think tax cuts give an opportunity to the economy, but they actually turn out to be pro-cyclical" - boosting growth in an upturn rather than in a slump.

Even with broader tax powers, Krugman said, Scotland "wouldn’t be able to borrow money to smooth out the cycle in the way that national governments can. So you would find you can’t avoid pro-cyclical policies. You end up aggravating the problem."

He concluded: "Unless you can come up with much cleverer [government] institutions [to manage the fiscal policy], and persuade the bond markets to finance you, it won’t work."

The Guardian said in their leader said,

The thinking is that people and firms would move north of the border for the cheap homes, above average state-education system and good transport links. Having a landscape covered in heather, sprinkled with castles and dotted with golf holes helps too. Scots have fashioned institutions, after devolution, which reflect their particular bents and national spirit. Some of these are undoubtedly attractive. Saying no to university tuition fees and providing free long-term care to the elderly are clearly powerful incentives to live there.

Posted by Paul at November 4, 2003 02:42 AM |

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