Friday, March 18, 2011

Corporation tax and investment

The issue of Ireland's much loved 12.5% corporation tax rate is being widely discussed. Some see the proposal to increase it as "suicidal", others see it as a threat to our sovereignity while the Irish Times' drama critic no less considers it all a distraction. The views of its GAA correspondent are currently unknown.
For those who actually spend any amount of time studying the topic, it is clear that investment decisions are a function of many factors and the effect of taxation is quite complicated, see for example Devereux and Griffith. A recent meta-analysis of 25 studies finds quite large effects viz. "The median value of the tax rate elasticity in the literature is around –3.3 (i.e. a 1%-point reduction in the host-country tax rate raises foreign direct investment in that country by 3.3%)."

5 comments:

Liam Delaney said...

Again with my role as moderator/Kevin's conscience its worth pointing out that Fintan O'Toole is, as well as being a drama critic, also assistant editor of the Times and columnist and has written a number of books on Irish politics and social issues.

Kevin Denny said...

My conscience is doing fine all by itself, thank you very much. I know of no reason for believing that Fintan O'Toole has the slightest expertise on the economics of international corporation tax - notwithstanding his books on unrelated topics. Anyone can have an opinion -though most people do not have the option to broadcast that opinion widely. But not anyone can have an informed opinion. Not to grasp this shows extraordinary hubris.
I think there is a lot to be said for people, who are in responsible positions, not commenting on technical issues which are simply beyond their level of competance. What next: the IT's gardening correspondent sagely discussing the merits of the government's cancer strategy?

Liam Delaney said...

fine Kevin - just making the clarification as I think describing him as being the Irish Times drama critic in that context is incomplete.

Do you really think only domain-specific experts can comment on issues like corporation tax? Can informed commentators not try to digest what experts are saying and then argue and communicate in a public sphere? I think that is a remarkably view of the function of public debate and a massive overestimation of the role of experts. Experts should fuel public debate but not neccesarily dominate it. Many issues, including corporation tax, have both positive and normative implications and for the latter the views of experts are not neccesarily priviledged over informed commentators.

Liam Delaney said...

Then by your logic Kevin people like Ben Goldacre, Ezra Klein, Felix Salmon, Tim Harford etc., etc., should all shut up about broad economic or statistical issues unless they are willing to become specialists in a particular area? Surely the issue is not whether a person is an expert in a particular area when they comment but rather whether they have taken sufficient care to read the material and make their argument coherently. If you specifically think O'Toole said something dumb then fine but I really cant see how you can question his mandate to comment on these issues per se. Good commentators should take the best knowledge and bring it into the public sphere and also flesh out normative aspects that are outside the realm of the academic speciality. It would be a poorer world if people weren't willing to take that role.

Kevin Denny said...

Ben Goldacre in general only talks about things that he has a reasonable level of expertise in which is why he makes such excellent reading. He did make some comments on inflation recently which were a bit daft which suggests that he should stick to what he knows. I don't read the other guys so I have no opinion.
Nobody has a "mandate" to talk about anything. I think its fair to say that you or I probably know as much about oncology as FO'T knows about international taxation.
I think it would be irresponsible for either of us to to start offering opinions in public about what treatments for cancer care should be provided. In the case of the effects of tax reform on investment, I know a little since I have a few papers on it (details below) but I know its sufficiently complicated not to offer an opinion.
The trouble with many commentators is that while they have valuable insights into some areas, they lack the humility to acknowledge that they should shut up about others and editors (in Ireland) are not minded to do anything about this.

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'Capital allowances and the impact of Corporation tax on Investment in the UK' (1993) (with S.Bond, M. Devereux) Fiscal Studies, 14(2): 1-14.
'Investment and the role of tax incentives' (with S.Bond, M.Devereux) in Private Investment as a policy objective(1992) (editor Andrew Britton) London: National Institute for Economic and Social Research.