This is the second time today – the other was from Paul Mason – that I’ve seen the claim that Professor Kimberley Clausing proved that corporation tax is not incident upon the wages of the workers. This is not what Clausing did prove and I know this because I went and asked her.
So, Richard Murphy:
It is the work of Prof Mike Devereux at Oxford that, for example, underpins the IFS claim that corporation tax increases are actually paid for by wage cuts. The claim has been resoundingly shown to be unfounded by Prof Kim Clausing, but it persists.
Deveraux’s claim is toward the stronger end of the spectrum, certainly, but entirely within likely bounds. The work of Joe Stiglitz shows that it might be too weak a claim in some circumstances.
But to he Clausing claim, this is amusing:
Finally, just because this so amuses me, there was a fascinating paper that showed that, actually, the different tax rates in these different developing countries seems to have no effect on how much the multinationals invest in them. That rather seems to shoot my fox as one Richard Murphy insisted it did:
The Clausing paper argues that one good reason why the incidence is not upon labour is because corporates have become very good at shifting tax liabilities around through debt financing, cross border sales and so on.
In fact, all of the things that you campaign against. It does become pretty difficult at that point. Corporate taxation does not fall on the workers because companies dodge it: therefore we must stop corporate tax dodging so that the incidence will fall on the workers?
I suspect Kim Clausing would laugh herself silly that someone could read such an absurd argument into her paper In that context it’s only fair to say I last saw her at lunchtime.
Excellent: so you might be able to ask her about that interpretation of the paper, then?
I know what she’d think of it It’s very clear she thinks there is no empirical evidence on any basis of a link between corporate tax and labour rates As her paper very clearly and robustly shows.
So I sent an email to Professor Clausing … ”I read that as stating that precisely because many multinational firms are “tax dodging” therefore the incidence of the corporate income taxes not upon the workers in the form of lower wages. …
In wider terms, it is precisely the jurisdiction shopping that such companies undertake that explains the lack of evidence of an impact upon labour of the corporate income tax. I just wanted to check that that is the implication that you are making in this part of your conclusion?” …
“Thank you for your email. Yes, that is the implication.”
The reason Clausing’s paper shows no incidence of corporation tax upon wages is because the corporations are already dodging the corporation tax. This tells us nothing about the incidence of a corporation tax that actually bites.
The full conversation is here.