ECONOMIC SIZE

A lot depends on the size of a country's economy, GDP. To pick but one example, E.U. Member States are not supposed to run a budget deficit of more than 3% of GDP. The problem is that measuring GDP turns out to be quite difficult.

The statistics authorities in all developed countries are busily updating and improving the way in which they measure GDP. One change which will have a major effect is to reclassify research and development expenditure as an investment instead of a current cost. This will increase GDP in some years and reduce it in others. That in turn will change the economic growth rates that politicians are so keen to brag about.

In the case of Denmark, the country with the world's highest tax take, there is an added bonus. The share of the economy that goes in taxes is likely to be reduced by some 1.8 percentage points, the biggest fall in the tax take since 1975. Reclassifying turns out to be a lot easier than real cutting.

Walter Blotscher