Contrary to what is promoted by the EU’s central bankers, higher taxes tend to coincide with lower deficits and low debt.

Eurozone central bankers have advocated cutting taxes as part of deficit reduction, placing the burden entirely on public spending cuts, while politicians across the eurozone have tended to prefer spending cuts over tax increases in implementing austerity. But are lower taxes the key to deficit reduction? Craig J. Willy looks at evidence from across the OECD and finds that higher taxes tend to be correlated with lower levels of public debt, and greater fiscal sustainability. In addition, greater levels of income equality in countries are also correlated with fiscal sustainability.