Adam Smith Institute

TFD and economic growth

From 1963 to the late 1970s, Tax Freedom Day moved in relatively similar ways in the UK and in the US. At this time the two countries experienced similar real GDP growth.

Since the late 1970s, however, Tax Freedom Day has generally occurred later and later in Britain, while in the United States it remained broadly static. During this period, real GDP growth in the US began to outstrip that of the UK, which entered a period of se¬vere economic decline.

TFD in other developed countries

How does the UK compare with other countries — the wealthy countries in the OECD, for example, or the European Union or Euroland? The chart shows that there are large differences. In 2005, Euroland citizens had to work almost one month longer than British subjects before they had paid off their taxes; for EU residents as a whole, the difference was just short of three weeks. But by 2006, the UK was catching up. The difference in the tax burden between the UK and the euro-zone was now down to three weeks and that between the UK and the EU average was barely more than one week. Part of this change is due to the swings of the business cycle. Structurally, however, more and more EU and OECD countries, particularly in Central and Eastern Europe, are adopting flat taxes and/or low taxes. So the advantage that Britain may have over the high-tax countries of “old Europe” is likely to be eroded by the radical low-tax high-growth performance of “new Europe”.