Markets are treating the UK as if it's a developing economy — a sign that confidence has plunged — after Britain shared a plan to cut taxes, according to Nobel Laureate Paul Krugman. 

The top economist pointed to the market bloodbath last week when the pound dipped after new Prime Minister Liz Truss announced she would be implementing tax cuts, including a 5% cut on top wealth holders and slashing planned corporate tax increases. 

"British markets aren't acting like those of an advanced country," Krugman said in an op-ed for the New York Times on Friday.

The government acknowledged the plan means that there will be massive borrowing to cover budget deficits. Advanced countries in a budget deficit see the value of their currencies surge as investors expect their central banks to raise rates to tame inflationary effects, he noted. 

But Britain's markets are "behaving like those of a developing country, in which investors tend to see budget deficits as a sign of irresponsibility and a harbinger of future policy disaster," Krugman said.

Cutting taxes in the hopes of fueling economic growth is a "zombie" idea, Krugman said. Meanwhile, the US economy took off during the Clinton administration, which raised taxes. 

"But officials still insisted, despite all the historical evidence to the contrary, that their tax cuts would do great things for the British economy. Obviously, I don't believe their assurances. More importantly, neither do financial markets," he added.

The turmoil in Britain's markets could be an overreaction. Still, it is a testament to the "crisis of confidence" Truss has set off overseas, which could be an omen for the British economy in the near future, Krugman noted.

"There is no reason anyone who isn't a right-wing apparatchik, sealed in a hermetic intellectual bubble, should believe that tax cuts for the rich are the answer to what ails us," he said.