March 12, 2009

Econ 201: Corporate Behavior

Corporate oil booms in low-tax Switzerland

Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.

"Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate," Transocean Chief Executive Bob Long said in a statement in October, when it announced its move. "As a result, the redomestication will improve our ability to maintain a competitive worldwide effective corporate tax rate."

Dear Mr. President,

This phenomenon is called "safe-haven capital flight" and is a perfectly predictable and utterly rational corporate response to increased taxes on capital. Please note that tax-exporting capital flight can and does occur not just on the imposition of new taxes, but on the future expectations of same.

I would beg to note that capital flight also involves human capital.

It's not too late to stop or reverse the trend. But it's getting there.


A Recovering Economist

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