A journalist from the AFR rang me today to ask me to comment on a recent report by the World Bank and PWC which is a comparative study on the payment of tax by companies. It's an interesting report but it's conducted with such heroic simplifications that one sometimes wonders if it's worth it. For instance there's an assumption that the incidence of taxes companies pay falls on them with payroll tax, when a fair bit of it if not most is more likely to fall on workers.
I was more interested in the stuff on the ease of payment of tax - ie red tape. Even here the assumptions are heroic - namely that the number of pages in the 'primary' tax act is a worthy indicator. Well maybe, but maybe it's just an indicator, but not a very good one.
Anyway, I ran my hypothesis that European civil law systems are much more efficient than those with British origin over some of the data and some of it is suggestive that the hypothesis is right. And some isn't. For instance the length of the tax code in France and Germany is very short (by comparison - a few thousand pages), whereas some of the worst offenders who have double and triple this are from the Anglosphere.
There's also a striking table above, and here illustrating something that's not surprising and pretty well known. One of the things that rich countries have is public institutions which - at least comparatively speaking - work.
I went hunting further into the data which you can find by following the link rather than the table, and as they say, if you torture it long enough, eventually the data will confess. I looked at the data making up this table for differences within developed countries on the quality of enforcement of contracts. When I looked at the time it took, no pattern of note emerged - or rather a pattern that looked to casual inspection to be the opposite of what I'd expected with quite a few anglosphere countries doing relatively well (though even here the amount of time taken to enforce a contract strikes me as pretty outrageously long).
If I'm to keep my hypothesis in the running I have to assume that, though their court system works better, they don't fund it well enough to reduce delays. The English speaking countries seem to proceed faster in legal matters - which is a pretty important aspect of efficiency. When I ranked them by estimated cost of enforcing a contract as a proportion of the cost of the contract, I heard a yell of pain and then . . . voila - my data confessed. Over the fold is the table - but the story is that the most efficient countries are mostly European and rich Asian ones. No English speaking ones in there at all.
Well, that's not quite true there is one tiny exception - which is very odd. The very litigious USA is very efficient by this measure. Perhaps it's contingency fees, and/or a kind of perverse result that emerges from people trying to avoid court. Very odd. But it's an interesting table - over the fold. But before you click - here's a tip. Don't try enforcing a contract in Siera Leone. If you win, you'll probably get killed. If you don't you'll spend more on your lawyer than you'll get back from the court.
Enforcing |
|||
Region or |
Procedures |
Time |
Cost |
29 |
230 |
5.5 |
|
19 |
208 |
5.9 |
|
27 |
228 |
5.9 |
|
14 |
352 |
5.9 |
|
15 |
190 |
6.5 |
|
17 |
300 |
7.7 |
|
24 |
166 |
8.6 |
|
14 |
277 |
9 |
|
23 |
342 |
9 |
|
20 |
242 |
9.5 |
|
27 |
328 |
9.5 |
|
21 |
335 |
9.6 |
|
32 |
880 |
9.8 |
|
22 |
561 |
10 |
|
41 |
980 |
10 |
|
46 |
257 |
10.3 |
|
49 |
397 |
10.3 |
|
37 |
360 |
10.5 |
|
30 |
394 |
10.5 |
|
47 |
591 |
10.5 |
|
58 |
695 |
10.6 |
|
48 |
297 |
10.7 |
|
43 |
335 |
10.7 |
|
28 |
109 |
10.9 |
|
22 |
215 |
11 |
|
47 |
1,011 |
11.2 |
|
37 |
183 |
11.5 |
|
25 |
275 |
11.5 |
|
26 |
600 |
11.5 |
|
21 |
240 |
11.8 |
|
21 |
331 |
11.8 |
|
44 |
140 |
12 |
|
17 |
346 |
12 |
|
23 |
520 |
12 |
|
33 |
635 |
12.7 |
|
22 |
730 |
12.7 |
|
19 |
181 |
12.8 |
|
41 |
598 |
12.9 |
|
29 |
552 |
13 |
|
29 |
720 |
13 |
|
52 |
390 |
13.3 |
|
31 |
178 |
13.5 |
|
35 |
195 |
13.5 |
|
24 |
185 |
14 |
|
34 |
440 |
14 |
|
21 |
820 |
14.1 |
|
16 |
211 |
14.2 |
|
24 |
495 |
14.5 |
|
38 |
553 |
14.5 |
|
29 |
120 |
14.6 |
|
30 |
690 |
14.8 |
|
40 |
465 |
15 |
|
33 |
520 |
15 |
|
49 |
545 |
15 |
|
41 |
626 |
15 |
|
25 |
1,350 |
15.2 |
|
30 |
455 |
15.3 |
|
41 |
498 |
15.3 |
|
65 |
520 |
15.3 |
|
42 |
616 |
15.5 |
|
23 |
515 |
15.7 |
|
27 |
565 |
15.7 |
|
37 |
630 |
15.7 |
|
22 |
408 |
15.9 |
|
39 |
655 |
15.9 |
|
29 |
1,290 |
15.9 |
|
28 |
183 |
16 |
|
25 |
600 |
16 |
|
43 |
620 |
16.1 |
|
37 |
310 |
16.2 |
|
43 |
342 |
16.2 |
|
28 |
665 |
16.2 |
|
33 |
480 |
16.3 |
|
42 |
615 |
16.5 |
|
28 |
510 |
16.6 |
|
19 |
229 |
16.8 |
|
49 |
578 |
17.1 |
|
21 |
481 |
17.3 |
|
34 |
420 |
17.4 |
|
26 |
425 |
17.5 |
|
29 |
314 |
17.6 |
|
40 |
1,210 |
17.6 |
|
40 |
400 |
17.9 |
|
51 |
892 |
18 |
|
55 |
1,010 |
18.4 |
|
34 |
607 |
18.5 |
|
35 |
305 |
18.6 |
|
34 |
615 |
18.7 |
|
36 |
595 |
19.6 |
|
27 |
267 |
19.8 |
|
44 |
360 |
20 |
|
37 |
415 |
20 |
|
37 |
1,346 |
20 |
|
31 |
972 |
20.1 |
|
34 |
275 |
20.2 |
|
26 |
700 |
20.2 |
|
24 |
285 |
20.5 |
|
67 |
770 |
20.6 |
|
18 |
217 |
21.1 |
|
28 |
225 |
21.1 |
|
31 |
450 |
21.3 |
|
20 |
837 |
21.3 |
|
20 |
486 |
21.8 |
|
47 |
872 |
21.9 |
|
50 |
583 |
22.1 |
|
31 |
585 |
22.1 |
|
52 |
394 |
22.2 |
|
39 |
390 |
22.6 |
|
55 |
880 |
22.6 |
|
29 |
591 |
22.8 |
|
33 |
780 |
23.8 |
|
30 |
661 |
24.2 |
|
37 |
535 |
24.3 |
|
28 |
590 |
24.4 |
|
26 |
501 |
24.8 |
|
.. |
1,642 |
25 |
|
34 |
432 |
26.5 |
|
36 |
1,459 |
26.5 |
|
31 |
292 |
26.8 |
|
33 |
410 |
26.9 |
|
23 |
457 |
27 |
|
40 |
1,140 |
27 |
|
59 |
1,225 |
27 |
|
18 |
415 |
27.8 |
|
39 |
721 |
27.8 |
|
52 |
681 |
28.2 |
|
31 |
270 |
28.3 |
|
21 |
404 |
28.7 |
|
41 |
435 |
28.7 |
|
60 |
721 |
29.4 |
|
25 |
525 |
29.5 |
|
49 |
720 |
29.7 |
|
53 |
443 |
30.3 |
|
36 |
480 |
30.4 |
|
37 |
1,340 |
30.5 |
|
37 |
295 |
31 |
|
51 |
635 |
31.2 |
|
47 |
403 |
32.5 |
|
35 |
368 |
32.6 |
|
27 |
385 |
32.8 |
|
43 |
622 |
33.2 |
|
35 |
300 |
34.7 |
|
29 |
460 |
35 |
|
19 |
484 |
35.2 |
|
56 |
1,420 |
35.7 |
|
26 |
247 |
35.9 |
|
58 |
800 |
36.4 |
|
46 |
478 |
39.8 |
|
25 |
360 |
41.3 |
|
33 |
360 |
42 |
|
27 |
310 |
43.2 |
|
45 |
660 |
43.7 |
|
44 |
276 |
43.8 |
|
28 |
860 |
45 |
|
47 |
560 |
45.6 |
|
50 |
1,442 |
45.7 |
|
30 |
510 |
47 |
|
45 |
686 |
50 |
|
21 |
393 |
51.5 |
|
52 |
743 |
54.9 |
|
26 |
397 |
62.1 |
|
24 |
430 |
64 |
|
67 |
405 |
69.5 |
|
25 |
455 |
69.8 |
|
26 |
660 |
71 |
|
25 |
775 |
77 |
|
41 |
446 |
95.4 |
|
22 |
440 |
110.3 |
|
31 |
401 |
121.3 |
|
34 |
570 |
126.5 |
|
38 |
1,010 |
132.1 |
|
40 |
337 |
136.5 |
|
51 |
685 |
156.8 |
|
69 |
1,170 |
183.1 |
|
58 |
515 |
227.3 |
Nicholas, I don't find the data persuasive as to your efficiency hypothesis.
I could posit an alternative hypothesis, that legal costs are fixed across countries. Your ranking fits my hypothesis, too. Which kinda indicates there's something lacking in both hypotheses.
Thanks for the comment SJ, but I can't really understand the point you're making. Can you expand a little.
No worries.
Let's say that the cost of pursuing a debt is $100. In rich countries, it turns out that $100 is small compared to the size of the debt. In poor countries, $100 is large compared to the size of the debt.
Note that I'm not claiming that my hypothesis true.
I guess what I'm trying to say is that you've found a correlation between two factors, but you haven't really given a convincing argument as to the causal relationship between the two.
Sir/Ms
Your publication including the analysis is not far from facts.
But, where do you catagorize those States known for their "AIDS package" ? and not loan or technical assistance Program under UN ambrela?
warm regards,
GBZ
I think the correlation is reasonable, but I've not subjected it to proper analysis. I'm basically ignoring the less developed countries as I expect a bunch of other factors will be relevant. But amongst the developed countries, there's a whole bunch of European and rich Asian countries up the top, and then a bunch of English speaking countries. But I'm not making too much of it because
1) The US is an exception (Though I'll make use of your suggestion that perhaps it has bigger cases on average which accounts for at least some of it's good rating.)
2) If you look at time of cases, as I've said, what patten there is seems to go the other way.
Overwhelmingly, major international trade flows through Anglo systems and Amsterdam. The ME's legal system is basically the Chancery division of the High Court (their Supreme Court) of London with a bit of help from New York, the Caymans and Bermuda.
So that is important.
Also, I may be being presumptous, but looking at two of my favorite countries (for comparative purposes) France and Australia, the percentage of the debt in France is 11.8 as against our 12.8 but the length of time is 331 against our 181. Would not that 150 days easily cancel out the 1 percent of the debt? if interest is more than 2.2 percent, at least it would, or so it seems to me very quickly in the morning.
PS I agree that the assumptions are heroic to the point where discretion might have been the better part of valour. Number of pages, to start with, is surely a heroic to the point of useless measure of anything except the likelihood of RSI amongst practitioners.
Yes, I caught myself wondering whether they'd counted the number of words for instance! Maybe the methodology isn't that shallow. But then maybe it is!
Am a fan of continency fees. Not only do they improve efficiency, but they also improve access to justice.