On this tax incidence thing, that taxes aren\’t fact paid by corporations but by some combination of the stakeholders.
So, we’re left with a pretty stark choice. Those who say they pay the tax in business are either wrong or the economists are. For evidence that business thinks it is the economists who are wrong look at Tescos at the weekend saying they paid disproportionate tax: the Devereux / Mankiw argument is that they are deluded in saying so, since they actually pay none according to their hypothesis. Which is it to be?
Well, given that economists are pretty much wrong about everything else on business there’s a very good chance it is them. After all, if we were to believe economists all businesses set out to maximise profit which is defined as the net present value of future cash flows. Of course, no business actually knows what this might be which either makes it easy to achieve or an absurd assumption, depending on your point of view, but quite useless in practice either way. As a result it’s not hard to believe that the economists are wrong.
Economists are wrong and yah boo sucks!
It\’s an extraordinarily compelling argument, don\’t you think?