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Are economists having a laugh on 50p tax?9th September 2011 by John Drummond
In a letter in today’s Financial Times, 20 economists say: “only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth”.
There is a hidden assumption in their position that the primary motivator for entrepreneurs is financial reward. I may be missing something but while there is a great deal of analysis on executive compensation, I struggle to find good studies on executive motivation (search Google Scholar on “what motivates CEO’s?”)
There is a great deal of subjective evidence. If you look at the profiles of executives in The Times they are regularly asked if they are motivated by money. It appears from these profiles that money is important but often not their principle motivator. Other factors, like transforming their business, delivering for customers or motivating their colleagues are also relevant.
It is a grand claim by these economists that action on tax is the only way of achieving long-term sustainable growth. Perhaps as academics and numbers-guys they might present some compelling evidence before they expect their argument to have any force.
If money is the primary motivator of existing, potential and “new world” CEO’s, there is also a case to explore what CEO’s do with the money they earn. There are broadly four alternatives – pay tax (not optional), improve their lifestyle, provide for children, family and friends and give to social causes. Again, while there is some evidence here (e.g. trends in strategic philanthropy or books like: Why Rich People Give), the reality is that this is also an under-researched area.
If these academics are listening, perhaps they might share sources on CEO motivation and what executives do with their money. We might then base policy on what we learn. There’s always a return on investment if policy is evidence-based.