The Economist: The German Economy
http://www.economist.com/finance/displayStory.cfm?story_id=2441670
http://www.economist.com/agenda/displayStory.cfm?story_id=1785331

BBC: The German economy shrank in 2003
http://news.bbc.co.uk/2/hi/business/3398989.stm

EU Commission: Germany’s growth performance in the 1990?s
http://europa.eu.int/comm/economy_finance/publications/economic_papers/2002/ecp170en.pdf

Germany?s Technological Performance 2000
http://www.bmbf.de/pub/tlf_english_2000.pdf

“More than 150 German economics professors have called for an ‘orderly postponement’ of economic and monetary union because economic conditions in Europe are ‘most unsuitable’ for the project to start.”
http://www.internetional.se/9802brdpr.htm

Sources of growth in OECD countries
http://www.iie.com/publications/papers/baily1003.pdf

As mentioned with citations, Germany’s overall tax burden as a percentage of GDP is presently much as in Britain although Germany has a larger fiscal deficit, sufficiently so to breach the Eurozone’s Stability and Growth Pact. The present problem is not the tax burden but labour market sclerosis because of excessive regulation, low rates of return on investment, and the relatively high costs of employing people compared with almost all its main trading partners, mainly because of relatively large employers’ social security contributions.

On the low rates of return on investment in Germany, try: http://www.economist.com/research/backgrounders/displaystory.cfm?story_id=2441670

On Germany’s high employment costs in production industries, see Chart 2 in: http://www.bls.gov/fls/ichccreport.pdf

For an alternative - and arguably more rigorous - analysis of globalization and social spending, try this by Paul de Grauwe and colleague: http://www.econ.kuleuven.ac.be/ew/academic/intecon/Degrauwe/PDG-papers/GlobalisationAndSocialSpending.pdf

why should we raise taxes? How about you lower yours? Try it, you might find it enjoyable!

Because, if properly structured, high tax rates aren’t the economic drag you think they are.
So you try raising your taxes, you might enjoy it as much as the Germans!

Nope, calling Shroeder’s plan ‘economically illiterate’ is nothing more than an insult. And merited being answered in kind.

The crux of the AEI’s Hassett is this:
If you are going to harmonize taxes upwards, then newcomers [to the EU] would have no advantage ? and competition in Europe would be on infrastructure, where Germany has a clear advantage.

This completely ignores newcomer’s advantage that German-contributed tax revenue would be used to build up their infrastructure.

For Shroeder to demand that the newcomers choose betweem subsidies or tax-based competition, but not both is not economically illiterate, it’s entirely rational.

Also, please note this portion of the Slovak Spectator article that Scott cited:
Economic theory follows the Laffer Curve, which indicates that, if the tax burden exceeds a reasonable level, unwillingness to pay taxes grows among citizens and a grey economy develops.

The Laffer Curve is the corner stone of “supply-side economics”, a very much discredited economic theory.

We want to live like the rest of Europe and to catch up we have to allow our economies to grow and prepare for what seems to be an unavoidable all encompassing welfare system. We don’t have well-established large industries nor an over qualified work force. What we do have are entrepreneurs and competent people who need to be able to compete with the rest of Europe. Low taxes will at least give us a chance to compete on more or less equal terms.

Somehow I doubt that 10 countries joined the EU just so they could be told to give up one of the few things that keeps our foreign investment and economic growth going: low taxes. As mentioned by others before me, why should we raise taxes? How about you lower yours? Try it, you might find it enjoyable!

Google for Peter Lindert on this site and read the paper that?s referenced in the comments.

Schr?der told Focus magazine: ?In the central and eastern European countries there?s a certain expectation from enlargement ? ?we have low tax rates and wages, but infrastructure projects which we cannot finance ourselves, will be funded by the EU?. That is not the way to go forward. We need a sensible balance.?

What is so strikingly absent in this argument is a link between low-tax regimes and EU-funded infrastructure projects. Didn’t countries like Spain, Portugal, or Ireland also receive EU-funds for infrastructure? The new members are comparatively much poorer than those countries were back then, and still they should be denied any transfers for infrastructure development only because they favour liberal economic policies? Rotten morals, in my view. Btw, while continuing to fume against the low-taxing neighbours, Austria is slashing its corporation tax from 33% to 25% next year. As it turns out, the pain to the budget is not so great, since income taxes are a much more significant source of state revenue anyway.

Chart 2 shows hourly compensation costs for production workers, which include employer social security contributions, to be higher in West Germany than in almost all of the other countries shown, including the US. The question is whether labour productivity is sufficiently higher in West Germany to compensate for that cost disadvantage. The high unemployment rate in Germany suggests that on average across production industries it is not.