Babel and High Taxes

Here's an interesting link from Tyler Cowen, of Discover Your Own Inner Economist fame. In a nutshell...

European governments are able to maintain high taxes because the citizens in the various European countries are effectively held hostage by their linguistic limitations. The Dane who knows only Danish, for example, can't easily move to Slovakia for the tax advantages there. Competition based on relative tax rates is minimized by lack of language skills.

However, with the spread of common languages, like English, governments will be less able to take their taxpayers for granted. Increasingly, for example, English-speaking Danes reeling at 68% tax rates are leaving for the UK and other EU countries.

Closer to home, competitive tax rates explain phenomena like Boston's Fidelity sending operations south to Rhode Island and North Carolina.