Krugman on corporation tax, incidence and the role of tax in tackling market power

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Paul Krugman wrote an interesting blog on corporate tax incidence a couple of days ago for the New York Times. The essence of his argument is threefold.

First, he does not trust arguments that workers pay corporation tax because that argument is based on cross-country regressions where it is just not possible to differentiate the noise in the data to suggest that there is any meaningful relationship between corporation tax and wages when so many other factors are so obviously also involved. I agree, and have always done so.

Second, the argument makes little sense when so many corporate profits are now based on the exploitation of monopoly trading rights backed up by intellectual property law. He uses IT and pharmaceutical companies as an example, where excess profits appear to be prevalent. It is his, clearly argued and logical argument that corporation tax incidence falls largely on these excess profits.

Third, as he says:

This changes the narrative, doesn’t it? Instead of focusing on rising capital mobility as a reason profits taxes might fall on workers, maybe we should focus on rising market power as a reason why profits taxes fall on capitalists.

The point for now is that when someone tells you that changes in the world have made old-style corporate taxes obsolete, be skeptical. Some changes in the world may have made profit taxation a better idea than ever.

I couldn't agree more.