Even if businesses and entrepreneurs don't move abroad, they may simply do less

July 19, 2011 10:13 AM

Yesterday's City AM reported that over a quarter of large businesses are considering moving abroad, with most citing Britain’s high and complex taxes as the biggest reason. It would be disastrous if any of these companies follow through on that. Jobs would disappear and growth would be affected. The tax system - and especially punitive, political measures like the 50p rate - could drive individuals overseas too.

But that's not the full story. Those that do decide to stay here may simply choose to do less. Uncertainty might force businesses to make more cautious decisions, when they may have otherwise taken decisions that created jobs in a more stable tax system.

All this is explained very well by Gregory Mankiw, a professor of economics at Harvard. In this article for the New York Times he gives a very simple and clear explanation why higher taxes will mean he might work less. The people who miss out are those that would have otherwise enjoyed or used the goods and services he would have produced.

When we talk about businesses or entrepreneurs moving abroad because of taxes, some say that these are non-stories, as it doesn't really happen. City AM's piece show that's a real threat though. And what's certainly true though is that even if they do stay, their decisions are distorted by the tax system. They may simply do less.Yesterday's City AM reported that over a quarter of large businesses are considering moving abroad, with most citing Britain’s high and complex taxes as the biggest reason. It would be disastrous if any of these companies follow through on that. Jobs would disappear and growth would be affected. The tax system - and especially punitive, political measures like the 50p rate - could drive individuals overseas too.

But that's not the full story. Those that do decide to stay here may simply choose to do less. Uncertainty might force businesses to make more cautious decisions, when they may have otherwise taken decisions that created jobs in a more stable tax system.

All this is explained very well by Gregory Mankiw, a professor of economics at Harvard. In this article for the New York Times he gives a very simple and clear explanation why higher taxes will mean he might work less. The people who miss out are those that would have otherwise enjoyed or used the goods and services he would have produced.

When we talk about businesses or entrepreneurs moving abroad because of taxes, some say that these are non-stories, as it doesn't really happen. City AM's piece show that's a real threat though. And what's certainly true though is that even if they do stay, their decisions are distorted by the tax system. They may simply do less.

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