> Sweden has seen a significant boom after massively cutting taxes in the last few decades.

Sweden also saw a huge boom while massively raising their taxes post-WW2! And its cuts were, overall, from the highest taxes in the world, to the... 2nd-highest taxes in the world, now just barely losing out to Denmark by 1% of GDP. The correlations seem pretty complex.

In Europe, I don't see any real causal connection between tax rates and strength of the economy. If anything, there appears to be a bit of a causal connection in the opposite direction: weaker, less-developed countries have lower tax rates in order to try to lure businesses from better-developed countries. By percentage of GDP, these are the five highest-tax EU countries: Denmark, Sweden, Belgium, France, Norway. The five lowest-tax are: Lithuania, Romania, Switzerland, Latvia, Ireland.

And Germany, which has probably the strongest business sector in Europe, is towards the top; at 41% of GDP taxation, closer to Denmark's 49% than Lithuania's 21% (or the USA's 27%). Its high-tax but pro-market "social market economy" seems to be pretty successful overall.

At the risk of invoking Godwin's, any analysis of post-WW2 Sweden has to account for them being one of the few European countries that emerged from that conflict with its industrial base intact, which it managed by hedging its bets on who the victor would be.

http://en.wikipedia.org/wiki/Sweden_during_World_War_II

I'm from Lithuania. The problem with percentage of GDP using for all the European countries is not very good measure. Some taxes are indeed small in Lithuania (e.g. profit tax is 15% in Lithuania and 5% for small companies) but some taxes are really big (e.g. I'm giving away 42% of my salary to government). Small salaries and shadow economy in Eastern Europe might explain why percentage of GDP looks so well but we shouldn't be used as example of small taxation (because we are not).

We are smart, we are really good working, but be ready to pay a lot of taxes if you want to establish company here. While you don't need to pay bribes at least if you are doing everything legally :)

And yet you're failing at a key scientific principle, which is looking for alternative hypotheses to explain what you're seeing :)

Many of the commonly-cited examples tend to pick situations which are amenable to lots of explanations. To take your example of the early US: was it low taxes and light regulation? Was it the presence of massive amounts of land and natural resources essentially free for the taking (once the natives had been suitably subdued)? Was it the jump from agrarian to industrial economy? How much of a role was played by the lack of regulation on things like owning other people and forcing them to work for you?

Similarly, it's difficult to work only from short-term examples; Ireland had a great boom, yes, but they also got a real-estate bubble and a banking crisis -- both of which are pretty clearly related in some way to the tax/regulation situation -- and that's not so great for the long-term.

It's also important to consider the historical context. Rapid industrialization has almost always resulted in massive growth, for example, but at unimaginable human cost. Whether we look at starvation and accidental and deliberate deaths as a result of a five-year plan or the Great Leap Forward, or starvation and accidental and deliberate deaths during the Western industrial revolution, we find that this growth is not always a uniformly good thing. Yet, when approaching from a framework that values only numbers like GDP, we don't see those costs.

If you want a scientific approach, you have to be considering all of these things, and more :)

The US was not an economic power until after the Civil War, or in other words, roughly only the last two decades of the 1800s, which coincided with major technological advances such as the development of the steamship and the cotton gin. The first two decades of the 1900s coincided with a major bust cycle which did not end until after the passage of the first income tax. The US had marginal tax rates as high as 90% during the post-WWII boom. During the boom of the 1990s, tax rates were higher than they were during the Reagan or Bush II eras.

Sweden, at roughly 9.5 million people, is smaller than most major US cities, let alone metropolitan areas. It simply does not have the sort of expenses that a large nation must deal with. Further, as others have noted, Sweden's industrial base was not damaged in WWII, allowing it to avoid the type of spending that most other European nations had to deal with.

Ireland's boom resulted in an even larger bust. The key driver of the boom was reduced regulations which led to rampant overspeculation by financial institutions (i.e., essentially the same thing that happened with the U.S. mortgage market).

Estonia's economic boom is the result of the discovery and exploitation of massive oil shale reserves. Unlike most oil-producing nations, Estonia is not requiring extractors to compensate, clean up, or otherwise mitigate the environmental damage.

Singapore has increased taxes several times since 2003, with minimal effects to its growing GDP. Hong Kong has also increased taxes regularly, to pay for vastly expanded government services.