Via “William Sjostrom”:http://www.atlanticblog.com/archives/001196.html#001196, this rather remarkable “specimen of codswallop”:http://www.opinionjournal.com/editorial/feature.html?id=110004152 from Gary Becker, Edward Lazear and Kevin Murphy. These gathered luminaries argue in the Opinion Journal that cutting taxes has a double pay-off. It starves the beast, making cuts in welfare state spending more likely, and it also encourages workers to invest in “human capital,” i.e. job skills.
bq. The evidence is clear: Cutting taxes will have beneficial effects. Tax cuts will keep government spending in check and will provide the incentives necessary to produce a highly skilled, productive work force that enables high economic growth and rising standards of living.
This claim rests on some rather heroic assumptions which I won’t go into. It’s also, very possibly, self-contradictory; you can make quite a strong case that the two effects interfere with each other. Torben Iversen and David Soskice provide some decent “evidence”:http://www.people.fas.harvard.edu/~iversen/PDFfiles/SocialPreferences.pdf to suggest that people with high levels of specific skills actually want a beefy welfare state. More pertinently, where people don’t have such a welfare state, they may have a strong incentive to “avoid investing”:http://www.people.fas.harvard.edu/~iversen/VofCchapter.pdf in job-specific skills. If this result holds, then the benefits of tax cuts for human capital formation are _not_ clear at all. Starving the welfare state will deplete valuable forms of human capital.