Err, yes, that’s the point

Ireland’s tax policies have been criticised by some other governments, which have argued that its ultra-low rates are luring businesses away from high-tax jurisdictions.

That the punters can go elsewhere for better service at lower cost is how markets improve things. No reason at all why government shouldn’t be subject to the same pressures that continually improve supermarkets.

39 thoughts on “Err, yes, that’s the point”

  1. This reminds me of a comment Michael Jennings left over at my place in relation to the licensing laws in NSW. Apparently, one of the reasons for rejecting an application to open a new off license is that might take business away from an existing one. Such stupidity can only be dreamed up by state officials or politicians.

  2. You are aware of this thing called game theory that teaches us how uncooperative self interested competition can lead to worse outcomes for everyone right? Have you taken a look at any tax competition economics?

    If political inclinations were reversed and richie had written this you’d be howling about ignorance

  3. > You are aware of this thing called game theory that teaches us how uncooperative self interested competition can lead to worse outcomes for everyone right?

    Oo! Oo! A theory!

    > Have you taken a look at any tax competition economics?

    Have you looked at Ireland?

  4. > one of the reasons for rejecting an application to open a new off license is that might take business away from an existing one. Such stupidity can only be dreamed up by state officials or politicians.

    Not only, sadly. This is my local shopping centre. At one end, there a Tesco; at the other, an M&S. M&S have their own entrance straight onto the car park, but you have to walk through the entire mall to reach Tesco, despite the fact that Tesco have loads of external wall. The reason Tesco have been repeatedly denied permission to put big doors in that wall is that M&S object. The mall’s management apparently can’t get their heads around the idea of explaining to M&S that they don’t get to dictate the terms of everyone else’s lease.

  5. @Luis Enrique: Well, it works in practice, but does it work in theory?

    (which was originally intended to be a joke, btw…..)

  6. Squander Two said:
    “The mall’s management apparently can’t get their heads around the idea of explaining to M&S that they don’t get to dictate the terms of everyone else’s lease.”

    Actually, M&S probably do get to dictate how the shopping centre is arranged, as they are often an “anchor tenant”, a firm that the owner believes will bring in customers and so are signed up early, on favourable terms. The owners then use this to market the rest of the spaces (we’ve got M&S, there will be loads of customers coming in). It’s quite possible that M&S will have written into their contract that everyone has to walk past their store to get to the others.

  7. Luis, game theory was used in various attempts by supporters of high-tax countries to argue that tax competition is a bad thing.

    But tax competition was just one of the factors affecting tax rates, with lots of things acting in the opposite direction.

    In reality, it turned out that tax competition doesn’t bring tax rates down to damagingly low levels, it just holds them down to slightly less damagingly high levels than they would otherwise be.

  8. Richard,

    Yes, that makes some sense in general terms. Without getting very very boring and providing a map of the place, it doesn’t make much sense in this particular case.

  9. Ah; the only reason I know about shopping centre policies is long arguments with the VAT man about whether the “reverse premiums” that some of these anchor tenants received (effectively payment for lending their name to the site) were taxable. After seeing the sorts of deals that were done, nothing would surprise me.

  10. yes I am familiar with Ireland and empirical evidence on tax competition etc. my point is merely that statements like “No reason at all why government shouldn’t be subject to the same pressures that continually improve supermarkets” overlooks some pretty bloody obvious reasons why tax competition between countries might not be an unalloyed good

  11. “Luis Enrique

    You are aware of this thing called game theory that teaches us how uncooperative self interested competition can lead to worse outcomes for everyone right?”

    No it doesn’t. Game theory is far broader than that.

    What you’re saying is a bit like saying that “sport teaches us that whoever jumps furthest will win”.

    If you meant to say that it’s possible to devise artificial games in which co-operation results in gains for all and competition can lead to worse outcomes for all then you should have said so.

    Although it would have been a meaningless thing to say. as that hardly applies to the real world.

  12. Luis, Tim’s comment (“No reason at all why government shouldn’t be subject to the same pressures that continually improve supermarkets”) could mean either that he doesn’t realise that there are any arguments that tax competition is harmful, or alternatively that he has seen the arguments and doesn’t think that any of them constitute valid reasons against.

    Personally, having spent a large part of a year reading through a lot of the relevant papers on tax competition, I subscribe to the latter view.

    Hard to tell from one of Tim’s short comments, but I suspect he is in the same camp too.

  13. Richard nails the argument – and I’m also guessing Tim looks at:

    Firstly – The arguments against tax competition – which seem to boil down to ‘race to the bottom’ and the new one ‘denial of democracy’ – The counterargument that the likes of certain tax campaigners are engaging in a ‘race to the top’ (The top being 90% Plus basic rate tax – effectively total state confiscation of all income – it exists to all intents and purposes in the closest real world country to the Courageous state vision)- and that paying people to vote for you a la Gordon Brown also constitutes a mockery of democracy rarely get the same airtime.

    Secondly – The people making those arguments – almost all of whom work in the Public or ‘Charitable’ Sectors – and thus whose livelihoods are dependent on continual increase in state expenditure and the tax that funds it. I know for a fact a certain retired Norfolk ‘accountant’ has posited tax rates of more than 70% and ideally would want 100% base rate if he could force it on the public…..

    That’s the reason behind his endorsement of Ireland’s (Welcome) corporation tax cut I’d hazard….

  14. @ Luis Enrique
    “The Prisoner’s dilemma” long pre-dates the invention of Game Theory which is concerned with choices that optimise the probability of winning for each individual player. Fifty years ago, when Game Theory was (quite) new and fashionable, there was a very popular board game called “Diplomacy” which could be used to demonstrate that “international” co-operation between players beat go-it-alone tactics. However Murphy et al fail to realise that co-operation needs to include the wealth creators without whom he would eventually* starve to death. You need to persuade people to work, rather than sit on the couch watching daytime TV, so if you want tax revenue you need to tell them that it’s worth their while to work in your tax jurisdiction. That mostly means companies that are not foot-loose, so international tax competition is relatively insignificant. Agriculture and services are, overwhelmingly, inevitably local and they are the largest part of almost every economy. Oil and mining companies invest £billions in each project but employ very few people.
    There is a lot of complaining in the USA insurance sector about the “tax competition” from the Bahamas while there are far more insurance companies using tax havens in the continental USA than in the Bahamas.

    *in view of the layers of fat round his waist, it would take some time.

  15. Andrew C,

    read more carefully. I wrote it teaches us that *can* happen. It does teach us that.

    Richard, if Murphy had written a sentence like “no reason at all why governments cannot do X” thereby completely ignoring, say, public choice theory, do you think Tim would be interpreting that as yes I have carefully studied those arguments and find no persuasive empirical evidence they are of concern in this contexts, or do you think he’d be saying what about public choice theory you ignorant buffoon?

  16. Actually, Diplomacy taught you, everywhere I played it, that pretending to co-operate until the ideal movement to stab your putative ally right between the shoulder blades beat co-operation (which, as you correctly state beat go-it-alone.)

  17. Luis, you’re probably right, several of us probably would call Murphy an ignorant buffoon in such circumstances (although not without broader good reasons).

  18. It seems Luis wants us to wait until he does something that is demonstrably ignorantly buffoonish, rather than merely probably ignorantly buffoonish.

    To be fair, it won’t usually mean waiting very long.

  19. Diplomacy

    German/Britain was a good alliance. If Britain agreed to build only navies and Germany only armies they could cooperate without immediate fear of each other.

    But with Britain and Turkey being the strongest individual countries – being on the edge of the board rather than surrounded on all sides, if you were one of the other countries you often tried to get the 5 against the 2.

    Mind you, as you say, all alliances have to fall apart if someone is to win.

  20. At the intra-country level, enterprise zones with special allowances or lower rates for people moving or starting businesses have been widely studied.
    One such study has this telling comment:
    “The relaxation of planning regulations offered by Enterprise Zones is also much more cost effective than tax breaks”.

    So tax competition is ok, but there is a clear better way to attract business.

  21. John77:

    “You need to persuade people to work, rather than sit on the couch watching daytime TV, so if you want tax revenue you need to tell them that it’s worth their while to work in your tax jurisdiction”

    Murphy is on record denying the Laffer Curve in its entirety, and claiming that people will carry on working in the same jobs regardless of the tax rate, even up to 100%.

    One of you must be wrong.

  22. One way to deal with this is to move to a system of full imputation of taxes on dividends. Thus any tax paid by the company is treated as tax paid on behalf of the shareholder. If the top tax rate = company tax rate, for many investors (assuming they are already on the top rate) dividends are tax-free (that is, they come tax paid); or by equivalence dividends are paid out of pre-tax income and taxed.

    The biggest drawback is that retained earnings are taxed.

    If, then, the company rate is, say, 10% and the personal rate is 40%, then the shareholder is taxed a further 30% on the dividend. Tax competition is muted although the retained earnings issue remains, and shareholders using tax havens also suffer as they have little to offset the tax already paid. Works for locally domiciled shareholders though, and I have little concern for those using tax havens.

  23. @ Rob
    Isn’t it strange that people go on strike for more pay? You would think that if the amount of take-home pay in their pay packet didn’t matter there would be no-one willing to go on strike for more pay.

  24. That the punters can go elsewhere for better service at lower cost is how markets improve things

    Yes, but, in this case, they’re improving things for the taxpayers, not the taxspenders. THAT CANNOT BE ALLOWED!

  25. The mall’s management apparently can’t get their heads around the idea of explaining to M&S that they don’t get to dictate the terms of everyone else’s lease.

    Ah, I suspect what’s happened here is the mall’s management got M&S to commit first, probably before the mall was even built. They then used this as a huge selling point to the other tenants, including Tesco. M&S therefore got the prime spot, and probably feel that having every customer traipse past their doors is a just reward for being the name that pulls in the others.

    A few years back there was a plan to build a shopping centre somewhere between Wapping and Shadwell, and the mall owners did what I described above: got M&S to commit in the hope of attracting everyone else afterwards. Problem is, all the Muslims came out protesting because, apparently, M&S is Jewish and Israeli or something, and so M&S pulled out. As a result, the mall now sits empty.

  26. > Ah, I suspect what’s happened here is the mall’s management got M&S to commit first, probably before the mall was even built. They then used this as a huge selling point to the other tenants, including Tesco. M&S therefore got the prime spot, and probably feel that having every customer traipse past their doors is a just reward for being the name that pulls in the others.

    Yes, that would make sense — if M&S had the prime spot. But they don’t. Their external entrance is round the back, next to the bit of car park that most people don’t use because no-one can see it.

    Weirdly, the two actual prime spots — on either side of the main entrance — are in a near-constant state of turnover, as no-one can seem to make them work. Both sitting empty at the moment.

    It’s almost as if the place is badly run or something.

  27. 77,

    > Isn’t it strange that people go on strike for more pay?

    Yes, and isn’t it even stranger that those strikes are supported by the people who insist that doing things for profit corrupts?

    This is one of the most baffling things about the Left: their opposition to profits but not to the receiving of money. I have a lot of time for the argument that money corrupts — I mean, it clearly does corrupt some people. If they’d argue that doing stuff in return for money had a corrupting influence on organisations, that would make sense. I’d argue that the pros outweigh the cons, but it would still be a fair point. But no, it’s only profits that corrupt, apparently. Wages don’t, for some reason.

    But what could be a better example of the corrupting influence of money than a vital service like the NHS or the fire brigade or schools being crippled by its staff striking for more pay?

  28. Careful there: if you start talking about the capitalists going on strike for more profits then you’ve got the plot of Atlas Shrugged…..

  29. “I have a lot of time for the argument that money corrupts — I mean, it clearly does corrupt some people.”

    Barriers to trade corrupt.

    Where a barrier to trade blocks people doing what they want to do, a market opens up for bypassing the regulations. Paying the regulators to turn a blind eye, or grant permission, benefits both the person who gets to do what he wants and the regulator.

    Of course, that itself creates a motive for the regulator to create more regulations, so they can charge more for bypassing them. You get a system clogged by regulatory gridlock that you can only get anything done by either graft or black market illegality – both being incredibly inefficient. Hence poverty.

    Corruption is a market solution to the problem of barriers to trade – a way to reduce the damage they do. But corruption isn’t an inevitable consequence of markets. In a free market without pervasive regulation, there would be nothing to be corrupt about.

    The desire for money doesn’t corrupt – the desire for money leads people to do whatever makes money. In a free market, you make money by selling to others what they want/need. In a bureaucracy you make money through corruption.

    Bureaucracy corrupts, and absolute bureaucracy corrupts absolutely.

  30. > Corruption is a market solution to the problem of barriers to trade – a way to reduce the damage they do.

    Like the Expenses Scandal, for instance. Or when police officers take bribes in return for turning a blind eye to Mafia activity. They’re just trying to get round barriers to trade.

    > The desire for money doesn’t corrupt

    Have you met any humans?

  31. “Like the Expenses Scandal, for instance. Or when police officers take bribes in return for turning a blind eye to Mafia activity.”

    Assuming you mean the Parliamentary expenses scandal, that wasn’t corruption, but simple theft. The same as any expenses fiddle.

    But yes, the Mafia are primarily about circumventing barriers to trade. The police apply regulations to prevent the Mafia conducting certain sorts of businesses and trades, such as drug dealing, prostitution, loan sharking, tax and tariff evasion, and in the times past the sale of alcohol. Making them illegal is intended to stop people trading certain products and services – and you might argue rightly so in many cases. But it’s these barriers that create the lucrative markets the Mafia exploit, and it’s to circumvent the barriers that they bribe the police.

    Operating illegally is more expensive. There are much higher security and contract enforcement costs. There are enormously higher risks, requiring people to be paid more to make it worthwhile. That all gets added to the price of the goods they trade. But if the public want those goods enough, then the market will provide them.

    The market delivers what society wants, not what it ought to want.

    “Have you met any humans?”

    Yes. Have you ever read ‘Atlas Shrugged’?

    http://www.working-minds.com/money.htm

  32. Late coming back to this, because it was the weekend and I like to pretend I have a life.

    As far as I can see, you’re insisting on using some technical legal definition of “corruption”. You may well be correct in your interpretation of that definition, but I was clearly, from context, using the word in its much broader and more usual sense. Your response is a non-sequitur.

    I’ll also note that you manage to mention lots of Mafia activities, but somehow not GBH or murder. Odd, but also beside the point, because I didn’t actually say a damn thing about the Mafia’s activities; my example was police officers who will fail to investigate or arrest criminals who pay them enough money whilst continuing to investigate and arrest criminals who do not pay them enough money.

    > Have you ever read ‘Atlas Shrugged’?

    I prefer good writing.

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