Via William Sjostrom, this rather remarkable specimen of codswallop 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 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 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.