Taxes and growth

Does it matter that the non-oil tax take will hit a record high? Sure, it's illiberal. And its allocationally inefficient; I can spend my money better than the government.
But is it bad for economic growth? This is a tougher question. Some evidence says it is, others that it isn't (pdf).
My hunch is that a high tax burden would not do much damage, at least in the short-run. This is because the substitution effect - high taxes make work expensive relative to leisure, so we choose more of the latter - is mitigated by four mechanisms:
1. People aiming for a target level of wealth (because, say, they are like me and saving for retirement) have to work longer or harder to achieve that target.
2. Taxes can reduce unproductive activity, like rent-seeking and office politics, as much as productive work.
3. Millions of people are motivated to work by non-pecuniary considerations; a sense of vocation, desire for power, the challehge of it  and so on. I'm always surprised at the number of people in the City who keep working when they no longer need the money.
4. Others just have no room to change their working habits.  For millions, it's a 40-hour week, love it or shove it. The choice of taking or leaving extra overtime or freelance work just doesn't apply.
Now, I'm not denying that taxes matter at the margin - it's just that the margin might not be very extensive.
Still less do I deny that high taxes can have adverse effects in the very long-run because they weaken social norms in  favour of work. The child brought up today seeing his parents deterred from working harder by huge marginal tax rates might grow up to believe that work is futile.  Assar Lindbeck (pdf) stresses this kind of effect. 
All I'm saying is that Brown's opponents shouldn't argue that higher taxes will do much short-term damage to the economy. If, as many economists suspect (pdf), economic growth picks up this year and next, this argument will merely appear to discredit the case for lower taxes.
And that would be hugely regrettable.

Comments

[Alex]

My hunch is that a high tax burden would do much damage, at least in the short-run.

There's a not missing here, I think. Freudian?

[chris]

Not Freudian, just stupid.
Correction made.

[ivan]

High taxes make market work more expensive relative to home work, not just leisure. We will do more "jobs" ourselve instead of buying it on the market. In fact high taxes should lead to "despecialization". We will start doing all the things were we have a comparative disadvantage. Following Smith and Ricardo this should lead to lower growth, a negative sum game.