To defend offshore finance bods looting developing countries of their tax cash

But wait, there's more!

Think back to the original allegation. That the private sector is pulling out more than the public sector is putting in. Hmm, but don't we need at least one other number to work out whether that's important or not? I think we do even if no one else does. That other number being, well, how much is the private sector putting in? We can find a rough guide here.

Depends a bit on what we want to count, portfolio investment (buying bonds and shares), all investment or just foreign direct investment (building a factory). But certainly there's hundreds of billions a year going in and sometimes, in some years, trillions. They're not all equal, portfolio investment can leave when things get a bit hairy for example and that can be destabilising.

But a rough eyeballing suggests that the private sector has put some $3tn or so in in recent years just in FDI (foreign direct investment). And that $160bn a year or whatever coming out is, however much it's screwing with the taxman, actually the profits flow on that stock of investment. And I don't think that 5 per cent return on investment is all that heinous an amount to be taking out, I really don't.

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:

Worstall:

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?

Worstall:

Excellent: so you might be able to ask her about that interpretation of the paper, then?

Worstall:

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?” ...

Her response?

“Thank you for your email. Yes, that is the implication.”

That these corporations are already tax dodging is the very reason that the corporate income tax in those developing countries is not lowering the wages of the local workers.

So, the original claim is incomplete, because the private sector is sending in amounts an order of magnitude larger than what it is taking out. Thus that flow of the tax dodging I regard as being not very important.

I would be concerned about the dodging of resource rents but the major paper showing that this is happening does have a certain flaw to it. I think that dodging the corporate income tax in such developing economies is a good idea because the incidence of that tax will be upon the wages of the workers, not the company or the shareholders.

A major paper shows that there is no incidence upon the workers because the taxes are being avoided. And finally, as Forstater's second paper shows, the actual amounts being dodged are trivial in comparison with the claims being made.

Yeah, I'm cool with offshore finance and its effects upon developing countries. ®