Taipei, Sept. 23 (CNA) A Nobel prize-winning economist from the United States praised Taiwan's policy for tackling the global financial crisis Thursday, saying it is the main reason the country has been recovering well in the post-crisis era.
Edward Prescott, who won the Nobel Prize in Economics in 2004 and who now teaches at Arizona State University, said during the two-day International Economy Finance Forum in Taipei that Taiwan's gross domestic production (GDP) growth rate of 12.5 percent in the second quarter of this year was "impressive. "
There were a number of things Taiwan did right, he said, including cutting the corporate income tax rate from 25 percent to 17 percent, providing research and development tax credits to locally based enterprises and signing the Economic Cooperation Framework Agreement with China, which will foster direct foreign investment.
However, Prescott said that the best indicator of the global economic situation is market hours, which means the hours worked per week or per month, rather than GDP, because "while GDP is only part of output and is revised in major ways as more data becomes available, market hours are monthly and are not revised."
Prescott argued that failure of the central government, not market failure, was the main reason for the most recent recession and for the Great Depression of the 1930s. To make the economy boom, he said, countries need to cut marginal tax rates, be open, control government spending and avoid catering to special interest groups as this can erect barriers to the use of better production processes.
The Nobel laureate also called for governments to eliminate tax on capital income. Prescott said that eliminating this tax would increase market value by increasing the share of capital owned by the private sector and increasing the stock of capital, which in turn increases wages and salaries.
The idea of the imposition of such a tax as an attempt to reduce the widening wealth gap in Taiwan has led to recent fierce debate.
Prescott, who met with President Ma Ying-jeou earlier in the day, was scheduled to attend further forums Friday to discuss investment in sustainable economic responsibility and the global economic opportunities and challenges for young people. (By Chris Wang) ENDITEM/J