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John T. Williams on the Political Economy Essay (Article)

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Updated: Nov 11th, 2021

Introduction

The economical politics in the society allows making people’s life better. The question of economical politics is put sharply in the business sector. Different programs and economical reforms are provided with the aim to improve the economical position of the whole country and at the same time not to make people dependent from the changes and not to make their life worse. The economy of the country depends on a lot of factors, and the taxation is one of the main incomes of the state from the citizens of the country. There have been a lot of ideas and offers about the change of taxation policy in order to improve business positions and to make the taxation system applicable for both sides.

The article under consideration “The Political Economy of Corporate Taxation” by John T. Williams and Brian K. Collins dwells upon the problem of taxation and the ways how this policy can be influenced and improved. The article offers three propositions about the taxation, which may have a success. The propositions of the taxation rates are as follows, (1) to corporate effective tax rates with the aim to aggregate business interests, (2) to make the taxation effective by shock tax rate, and (3) to corporate effective tax rates with the aim to make real income and real investment exogenous. The main method of the investigation in the paper was the evaluation of the offered propositions by means of “exogeneity tests and the moving average representation from several vector autoregressions” (Williams & Collins 208).

Discussion

Before considering the three offered propositions, the article dwells upon the business power and the rate of its influence on public. The article argues that the recent understanding of business is mischaracterized in some way. This mischaracterization leads to the misunderstanding in the conceptions of business and in the roles which it plays. The first problem, which is raised in the article, is the misunderstanding of the definition of business in general. Business is often understood as the collection of firms, but this is not exactly so. Business is not just the collection of firms, all the participants of the business process are also included, such as managers of the firms, colleges, owners of the firms and partners. One more problem with the literature about business is that it makes wrong understanding of the time inconsistent policies. The literature gives the information that time inconsistent policies are the subject of business influence, what is not really so.

Time inconsistent policy means that government has no power to influence the private sector expectation plans, and when the problems appear, government should focus its attention on the policy solutions, but not on the optimizing them. The example of the policy, which is unable to be optimized by government, is the corporate tax policy. At the same time, aggregate effective corporate tax rates are not influenced by the business directly. The idea is that the change of effective corporate tax rates just motivates business, but at the same time it does not affect the aggregate effective corporate tax rate. The statistical analysis, which was provided by the authors of the article, it became understandable that corporate taxes are not influenced by business.

Before evaluating the propositions about corporate taxation, it is significant to discuss the problems of the business as the political actor and an equilibrium theory of corporate tax policy. The main idea of the discussion about business as a political actor is that the business should be considered both in macro and micro levels and that government, without direct interference to the corporation taxation still influences the issue. To conceptualize the complex behavior in an open political-economic system, it is better to use the equilibrium model, which provides a lot of solutions to the mentioned problems. To understand the equilibrium model, it can be mentioned that business participants use the information which may be useful for them, and this information is applied to the issues which will make the better influence in future. This means that predictions to the future are made rationally.

The equilibrium theory of corporate tax policy states that lawmakers do not want to lower taxes to separate individuals in business as only the corporate tax rate should be influenced and all the business interests should be included. The information, given above, will give us an opportunity to understand better the propositions, concerning corporation taxation, and to make right conclusions out of the information, whether they are successful or not. Considering the three propositions, which were mentioned at the very beginning, it is significant to make an analysis of each of them.

The first proposition in the article focuses on the effective corporate tax rates which “will be exogenous to aggregate business interests” (Williams & Collins 208). The results of such offer should influence the organization and business activity. In other words, the effective corporate tax rates will be influenced by the political strength and the increase of effective corporate tax rates, in its turn, will influence the business political organization activity, and will lead to its increase. Coming out of the equilibrium theory, it can be mentioned that private firms are in the better position as they are able to withdraw their investments at any time. The different case is with the corporations. A capital strike should not be organized as there is usually no need in disinvestment of the whole capital at once. It is important to mention, that all the information, reliable to this proposition, reveals to the micro level, not macro.

The second proposition deals with the investments, and that the effective corporate tax rates influences the investments. Moreover, the reduction of the level of investment may be caused by the shock in effective corporate tax rates. The proposition may be easily proved. Let us take the example of any field of business and predict that the tax is going to be increased. The result of such affairs will make the firm to move the capital into the other field of business, what will lead to minimum taxation rate. The problem is complicated by the fact that the taxation ate is almost unpredictable with the rational conclusions. In the other case, the taxes could be predicted and the capital transferred all the time. The article provides the information about the theoretical knowledge of the discussed topic in order to make it obvious, that neither of present theoretical activities was used in the analysis, only the results of the personal investigations, which were offered in the article.

The third proposition dwells upon the fact that real income and real investment may be exogenetic to conditions which take place in the economics. This third proposition has some connection to the first proposition as to minimize investments and to put hem in the ideal conditions, the effective tax rates should be provided by the Congress. The current proposition may lead to the fact that some firms will win, and the others will loose, but coming out of the first proposition, the “aggregate business influence will be exogenous to the effective corporate tax rates” (Williams & Collins 222).

The data and the provided analysis in the article state that organization of business interests do not provide the direct influence on the effective corporate tax rates. The statement does not mean that organization of business is out of importance, it just supports the idea that a lot of factors should be examined, such as political actors on macro and micro levels.

Conclusion

So, the article under consideration proves that business power has the impact on the public policy as well as public policy influences the business activities. The discussed questions are the starting questions in the democratic political system and the market based economies in the democratic capitalist state. Furthermore, the given data and analysis help to understand that government cares about individual and their profit, in spite of the fact that has no direct influence on the taxation rate in the business. The tax rate should be changed corporative, not individually, according to the equilibrium theory, which was discussed above. The propositions, discussed in the paper were supported by lots of the discussions and maybe trusted, as they are not sensitive to specification, but independent and thoughtful.

Works Cited

Williams, J. T. & Collins, B. K. (1997). “The Political Economy of Corporate Taxation.” American Journal of Political Science, Vol. 41, No. 1, pp. 208-244

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