United States per capita income grows faster than Europe’s

June 30, 2004

Free Market Foundation

The growing split between the United States and Europe has been much in the news, mostly on foreign policy. But less well understood is the gap in economic growth and standards of living. Now comes a European report that puts the American advantage in surprisingly stark relief.

The study, “The EU vs. USA,” was done by economists Fredrik Bergstrom and Robert Gidehag for the Swedish think tank Timbro. They found:

If Europe were part of the United States, only tiny Luxembourg could rival the richest of the 50 American states in gross domestic product per capita; most European countries would rank below the U.S. average.

U.S. GDP per capita was a whopping 32 percent higher than the EU average in 2000, and the gap hasn’t closed since; it is so wide that if the U.S. economy had frozen in place at 2000 levels while Europe grew, the Continent would still require years to catch up.

Ireland, which has lower tax burdens and fewer regulations than the rest of the EU, would be the first but only by 2005.

Switzerland, not a member of the EU, and Britain would get there by 2010, but Germany and Spain would need until 2015, while Italy, Sweden and Portugal would have to wait until 2022.

So what is Europe’s problem? “The expansion of the public sector into overripe welfare states in large parts of Europe is and remains the best guess as to why our continent cannot measure up to our neighbour in the west,” the authors write. In 1999, average EU tax revenues were more than 40 percent of GDP, and in some countries above 50 percent, compared with less than 30 percent for most of the United States.

Source: Editorial, Europe vs. America, Wall Street Journal, June 18, 2004; based upon Fredrik Bergstrom and Robert Gidehag, The EU vs. USA, Timbro, June 2, 2004.

For WSJ text (subscription required)
http://online.wsj.com/article/0,,SB108751426815241018,00.html

For study text http://www.timbro.com/euvsusa/

For more on International Growth & Taxes http://www.ncpa.org/iss/int/

FMF Policy Bulletin/22 June 2004