What economists think about ‘sweetheart’ tax arrangements

Credit: Glen Gyssler

Feb 24, 2017

In recent years, the European Union has ordered countries such as the Netherlands, Luxembourg, and Ireland to collect back taxes from multinational firms—Starbucks, Fiat, and Apple, respectively—that it suggested had benefited from “sweetheart” deals with local tax authorities. Such deals, the reasoning goes, give the companies an unfair edge over rivals and amount to illegal state subsidies. But legality aside, it’s unclear whether the benefits of these arrangements outweigh the costs for the countries involved: 30 percent of the economists on the European IGM Economic Experts Panel say they do, while 26 percent say they don’t. Most of the panel agrees, however, that this form of competition between European governments is not to the region’s benefit.


Agnès Bénassy-Quéré, Paris School of Economics
“Even in distressed areas this kind of policy gets poor results.”
Response: Disagree

Kevin O’Rourke, Oxford
“It depends on the nature of the incentives and the nature of the firms. Targeting sectors [is] presumably better than targeting ‘specific firms.’”
Response: Uncertain

Marco Pagano, Università di Napoli Federico II
“Providing such incentives may simply induce other jurisdictions to engage in the same behavior, and so eventually benefit only firms.”
Response: Uncertain

Jan Pieter Krahnen, Goethe University Frankfurt
“While benefits are consummated locally, negative externalities and allocative distortions are largely outside the country.”
Response: Agree
 


Charles Wyplosz, The Graduate Institute Geneva
“Tax competition is a Nash game that stands to hurt everyone. But, given high tax rates in Europe, tax competition keeps the lid on.”
Response: Agree

Nicholas Bloom, Stanford
“This helps reduce capital taxes, but risks generating incentives for bureaucracy and even corruption in governments.”
Response: Uncertain

Rachel Griffith, University of Manchester
“European countries largely compete against each other for firm location, so gains in one country equal losses in another.”
Response: Strongly disagree

Christopher Pissarides, London School of Economics
“The strongest will become stronger and the weakest weaker!”
Response: Strongly disagree

 

About the European IGM Economic Experts Panel 
To assess the extent to which economists agree or disagree on major public-policy issues facing Europe, Booth’s Initiative on Global Markets has assembled and regularly polls a diverse panel of expert economists, all senior faculty at elite research universities. The panel includes 50 economists from 27 major universities and business schools. Questions are emailed individually to the panel members, and panelists may consult whatever resources they like before answering. Members of the public are free to suggest questions.