There really are no other options available: to promote tax competition you either have to be a naive fool or you have to be a proponent of a false ideology that does not support free markets but which does, instead, seek to undermine the state and its right to govern on behalf of the people who elected it with the aim if promoting an increase in economic inequality.

There is possibly an alternative view. Which is that politicians tend to overtax their captive populations. Competition being the method by which this temptation can be tempered.

But then that, candidly, is just neoliberal sophistry.

And no, just no:

Free-market capitalism might see free markets doing that, but let’s be clear about what the necessary assumptions are for free-market capitalism achieving this goal. They are that:
There are many firms in any market.
Freedom of entry and exit.
All firms produce an identical or homogeneous product.
All firms are price takers, therefore the firm’s demand curve is perfectly elastic.
There is perfect information and knowledge.

That’s the technical description of one model. Used so that we can explore the implications of a model that conforms to those strictures. Just about all of microeconomics is seeing what happens when we relax one of more of those strictures.

And it’s really remarkable how closely real world activity meets the predictions of that extreme model even when near all of those strictures are missed by a country mile. For example, even a monopolistic firm might well act as if it wasn’t one if it was fully aware that it had a contestable monopoly (as is true of many of them).

He’s taking the extreme of the model, saying it ain’t all true thus it don’t work. Which is like saying that a photo of the Eiffel Tower ain’t hundreds of metres tall so it’s not a representation.

Still pretty useful if you want to know what an Eiffel Tower looks like.

12 thoughts on “Hmm”

  1. wht?

    The entire Swiss tax system is based on internal tax competition, between municipalities and cantons.

    Any “analysis” that doesn’t look at how this works (and it’s by far not a race to the bottom) is bound to fail.

  2. So different countries with different social and governmental structures should all have the same tax? And is that overall tax incidence or by type of tax so sales/VAT, Corp. tax etc should be the same for every country? Maybe he should see how successful the EU has been at VAT standardisation/harmonisation

  3. I think he’s saying that a market can only be free if it is entirely controlled to the finest detail by the State.

    Or maybe he’s just got a script churning out random Ritchiespeak sentences. It’s hard to tell.

  4. In the US, tax competition between states has left the country with low tax in places with little natural advantage (Texas) and high tax in naturally desirable-to-live places (California).

    Natural advantage is just one part of it, but it certainly accounts for a lot. I’d hazard a guess that the same effects apply in Switzerland: higher taxes in Zurich, lower rates in backwaters where few rich people want to live.

  5. He must know that’s a straw man. Or else he is genuinely simple.

    In any case, a departure from perfection does not prove that the state-run alternative is better, or can achieve perfection.

    Comparing imperfect markets to perfect government is there standard Leftist trick. Where as in reality, market outcomes are far more robust to institutional failures than are political ones (because of competition, innit)

  6. “Natural advantage is just one part of it, but it certainly accounts for a lot. I’d hazard a guess that the same effects apply in Switzerland: higher taxes in Zurich, lower rates in backwaters where few rich people want to live.”

    Actually, taxes are pretty low in Zürich – they tend to be lower where rich people live (or where they want to attract rich people) because – get this – they decide how much they want to spend on what, and then set the tax rates accordingly. And then vote on it 🙂

    The bulk of the French-speaking cantons, being poorer and lefter-wing, have higher tax rates. Exception: Geneva.

    The other interesting thing is that, in general (but again there are exceptions) the higher the tax rate the lower the house prices and rents.

  7. Promoting tax competition undermines the state.

    Citation needed. Promoting tax competition is no different than any other form of lobbying. Including writing papers on behalf of the TUC or the PCSU.

    The aim of promoting tax competition is an increase in economic inequality.

    Citation also needed. You could easily state that tax competition in developing or second-tier developed states decreases economic inequality – and you would have the example of Ireland. Which, through tax competition has taken business from other EU countries which, at the time, were mostly richer than Ireland (this has clearly changed with the Eastern European enlargement and the post-crash & euro disaster effects.)

  8. abacab said:
    “The bulk of the French-speaking cantons, being poorer and lefter-wing, have higher tax rates.”

    Poorer and lefter-wing, or lefter-wing and poorer? Which is cause and which effect?

  9. “Poorer and lefter-wing, or lefter-wing and poorer? Which is cause and which effect?”

    I think that at this stage it’s chicken and egg time. It’s kind of a self-reinforcing spiral.

    Although, as an interesting point, canton Neuchatel is very business-friendly, but has some of the highest levels of personal taxation in the country. It’s kind of similar to the Swedish model on that point.

  10. One does not “promote” tax competition. It is just the natural outcome of politicians of different countries, states, cantons, cities trying to get the maximum economic benefit they can get for their jurisdiction. This is the way that they get and stay elected.

    In order to “defeat” tax competition, one has to figure out how to overcome the Prisoner’s Dilemma. (Hint: One does not).

    Also no politician will “race to the bottom”. At some point they will determine that a reduction or exception from tax etc. does not result in a sufficient or greater uptick in another area of economic benefit such as employment.

    Those governments (and people like Mr. M) who moan endlessly about tax competition are just mad that their formally captive taxpayers have decided to move on because of a better deal for them.

    As always, incentives matter.

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