German Economist Criticises Finnish Finance Ministry Over Misuse of Tax Cut Data

The Finnish Ministry of Finance is under scrutiny after a German economics professor expressed frustration over how his research was cited to justify claims about corporate tax cuts. According to local reports, the controversy surrounds an internal ministry memo dated April 30, which asserted that a proposed €2 billion ($2.2 billion) tax reduction package would be “60% self-financing” thanks to supposed “dynamic effects” that promote economic growth.

Among the tax measures proposed is a cut to the corporate income tax rate from 20% to 18%. But questions have emerged about the validity of the 60% self-financing estimate. In a statement to Finland’s public broadcaster Yle on May 11, the ministry’s coordinator of economic policy, Lauri Kajanoja, admitted that the 60% figure is not based on any direct calculations. Instead, Kajanoja explained, “The figure is instead an assumption based on broader literature.”

One of the studies referenced in forming this assumption was by German economics professor Sebastian Gechert. But Gechert has now pushed back against the way his work has been used. He told media outlets that the notion the tax cuts would be 60% self-financing is misleading, clarifying that the data cited from his research pertains to GDP growth, not government revenue recovery.

Gechert reportedly said he was “irritated” that Finland’s finance ministry had chosen to highlight high-end estimates from his research rather than its main finding. According to Gechert, “The number 60% is very high and overly optimistic.” His study, he said, found that “average self-financing rates from corporate tax cuts are close to zero.”

The Helsinki Times also reported that the memo issued by the Finnish ministry lacks any formal modelling to support the claim made in the headline figure. Despite this, Kajanoja maintained that the number falls “closer to the upper bound” of estimates found in economic literature.

While the Ministry of Finance has issued a clarification to the original memo, it has not withdrawn the 60% self-financing assumption.

By fLEXI tEAM