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Paul Krugman's book "Arguing with Zombies: Economics, Politics, and the Fight for a Better Future" challenges the existing paradigm of low tax theory in business investment by debunking the idea that corporations primarily use tax cuts to expand capacity and add jobs. He argues that business decisions are less sensitive to tax rates than proponents of the low tax theory claim. Instead, business investment is driven more by market demand perceptions. He also suggests that a significant portion of corporate profits are rewards to monopoly power rather than returns on investment, making a tax cut more of a giveaway than a reason to invest.
Asked on the following book summary:
“Zombie ideas” simply refuse to die despite mountains of evidence to disprove them. How do you fight them? Paul Krugman, Nobel Prize winner in Economi...
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Corporations primarily use tax cuts to buy back their stock instead of adding jobs and expanding capacity. This is because business decisions are a lot less sensitive to tax rates than what the proponents of the low tax theory claim. Business investment is instead driven by perception about the market demand. Not many potential business investments are worth doing at a 21% profit tax that was not worth doing at the previous 35% rate. A substantial portion of corporate profits represents rewards to monopoly power instead of returns on investment, making a tax cut more of a giveaway than a reason to invest.
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