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Tuesday, December 27, 2005

NYT: Letter from Estonia

Ina wanted me to save the link to this NYT article from last week, headlined
"A Land of Northern Lights, Cybercafes and the Flat Tax". An excerpt:
Fired with a free-market fervor and hurtling into the high-tech future, Estonia feels more like a Baltic outpost of Silicon Valley than of Europe. Nineteen months after it achieved its cherished goal of joining the European Union, one might even characterize Estonia as the un-Europe.

"I must say Steve Forbes was a genius," Prime Minister Andrus Ansip declared during an interview in his hilltop office. "I'm sure he still is," he added hastily.

The subject was the flat tax, which Mr. Forbes never succeeded in selling in the United States. Here in the polar reaches of Europe it is an article of faith. Estonia became the first country to adopt it in 1994, as part of a broader strategy to transform itself from an obscure Soviet republic into a plugged-in member of the global information economy.

By all accounts, the plan is working. Estonia's economic growth was nearly 11 percent in the last quarter - the second fastest in Europe, after Latvia, and an increase more reminiscent of China or India than Germany or France.

People call this place E-stonia, and the cyber-intoxication is palpable in Tallinn's cafes and bars, which are universally equipped with wireless connections, and in local success stories like Skype, designed by Estonian developers and now offering free calls over the Internet to millions.

The flip side of Estonia's market ethos is a thinner social safety net than those in Europe's welfare states. Opponents of the flat tax here - and there are some - say it has widened the divide between rich and poor, making Estonia less like its Nordic neighbors and more like the United States.

This reminded me that I saw a short article in the Economist at some point over the past couple months, which discussed flat tax systems in Eastern Europe. I couldn't find the link to that one, but did turn up this one, which was published last April:

Simplifying tax systems | The case for flat taxes |

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