More on taxes -

[Peter_Puget]

Interesting Interview -

 

LOUNGANI: The effects of some economic policies are better understood thanks to your academic contributions. You did path-breaking work on whether capital or labor bears the burden of the corporate income tax.

 

HARBERGER: There are interesting developments to report on that front. In the closed-economy case that I analyzed in the 1960s, the natural result is that capital bears the burden of the tax and can more easily bear the full burden. But my students and I have now analyzed the open-economy case, which is more applicable to today’s global economy. The result in this case is that labor bears the burden and can more easily bear the full burden.

 

LOUNGANI: That’s quite a flip.Why does it happen?

 

HARBERGER: Think of the so-called “tradable goods” sector of an open economy, the sector that produces goods that are traded on a world market. The prices of these goods are determined in the world market. And, with an open economy, the rate of return to capital is largely determined in the world market, because capital can flow from country to country in search of the highest return. Now the government gets in there and tries to impose a corporation tax on capital.Well, who bears the burden? Capital can move across national boundaries to try to escape the tax. So it’s labor, the factor of production that can’t easily escape national boundaries, that ends up bearing the burden of the tax

 

PP