by John Snape. Oxford and Portland, Oregon: Hart Publishing, 2011. 290pp. Hardback $120.00. ISBN: 978-1-84946-028-6.
Reviewed by George R. Crowley, Assistant Professor of Economics, Manuel H. Johnson Center for Political Economy, Troy University. Email: email@example.com.
John Snape’s The Political Economy of Corporation Tax is a book that is at the same time both tightly focused and quite ambitious in scope. From the opening sentences, Snape makes it clear that, “This is a book about taxation” which “offers nothing as simple as solutions to problems” (p.1). This focus on taxation, specifically corporate taxation in the United Kingdom, gives the book a clear emphasis. At the same time, Snape’s goal of offering “nothing as simple as solutions” puts him on a path which requires painstaking study of a truly complex phenomenon: the making (and reforming) of corporate tax policy. Instead of offering solutions, Snape’s book is tasked with providing a full account of the political economy of corporate tax in the United Kingdom, including discussions of the various institutions involved, the motivations and incentives faced by each, the processes required to enact reform, and how recent reform of the British corporate tax code reflect the interaction of each of these. The approach is a welcome one which avoids over-simplifying matters the way (somewhat ironically) more technical studies of taxation do, and instead seeks to understand the extreme complexity that is omnipresent in policymaking. Snape is largely successful in this effort, and his book is an important contribution certainly to the literature on taxation in the UK, but also political economy more broadly.
The Political Economy of Corporation Tax sets out to explore just that: the political economy of Britain’s corporate tax structure and its reform. Responding to what he sees as a hole in the increasingly-technical literature, Snape attempts to fully and rigorously explore the complexities of tax policy-making and evaluate the implications thereof, using the corporate tax in the United Kingdom as a case study. His approach is thorough. Rather than seeking the “optimal solution” to some theoretical problem, Snape embraces the details of real-world processes often assumed away in the technical economics literature. His conclusions, in particular his view of corporate tax reform as political jurisprudence, may appear cynical to some readers while others, such as those who are students of public choice or political agency a la Besley (2007), will find themselves largely in agreement with his findings.
The book is written by a law professor, but Snape is clearly writing for a wide range of readers including lawyers, political scientists, and political economists. He draws extensively from the literature in each of these areas, especially when it comes to rooting his analysis in classic works such as Smith’s Wealth of Nations, though his references to more contemporary work (understandably) come from the legal [*14] arena. Snape is careful to ensure his readers from outside the legal profession are never overwhelmed by overly technical arguments; this is a book that is well researched and nuanced, yet accessible to researchers interested in the complex interworking of tax-policymaking, regardless of their fields.
In the opening chapter, Snape lays out the plan of his study. This begins with his definition of political economy which, after a discussion of several different approaches, he describes as, “the analysis of the exercise of political judgment in relation to the application of economic theory to corporate tax policy,” allowing for the case where theory is trumped by political prudence (p.7). He traces the discussion of corporate tax reform from the work of Adam Smith, through FA Hayek, up to the present with the Mirrlees Review. Perhaps the most important aspect of his analysis is its understanding of corporate tax as public law. Through the public law lens, Snape aims to account for the differences between the current tax system in place in the UK and an idealized system. In particular, his analysis is concerned with the “realities of politics” and political prudence in tax policy-making.
The second chapter continues to lay the foundation for his argument. Snape identifies fairness and efficiency as the two key values underlying tax reform, and notes the dichotomy between the technical and political aspects of policymaking. For Snape, the technical decision is choosing how to implement a course of action, while the political decision is choosing which competing value needs to be prioritized at a specific moment. As taxation (perhaps especially corporate taxation) is a highly technical field, there is a kneejerk tendency to assume away the political aspects of reform; but as tax policy inevitably generates conflict, in particular with regards to investment from multinationals, the political aspects cannot be ignored. Snape’s contention is that these issues, being political by nature, require a full understanding of what political prudence dictates. Corporate taxation is public law, and public law, as Snape sees it, is about political prudence. One specific area where the political clearly influences policy is the use of corporate taxation as economic regulation, with the goal of engineering the economy to maximize its potential for growth.
The political economy analysis begins in earnest in Chapter 3, which is focused on “The Reformers,” the major institutions involved in corporate tax policymaking in the UK. These include the obvious, such as Parliament and the Treasury, but his analysis importantly includes policy networks and non-government institutions such as the major accounting firms involved in the process as well. The goal of the chapter’s analysis is to develop a fuller picture of how the institutions interact, with a particular emphasis on how they build and maintain trust in the state’s capacity to exercise its power to tax (and specifically ensure corporations pay their “fair share”). Prudence becomes particularly important when the policymaking process calls for the expertise of various non-accountable (and deeply vested) groups outside of the government, which may appear illegitimate to voters as “corporation tax policy comes increasingly to be recognised to involve political rather than merely technical issues” (p.57). Snape discusses at length the differences in the [*15] roles of Parliament as scrutinizing body, informing the government of failures in policy and looking “over its shoulder” while the Treasury “stares into an inscrutable future” (p.78). Indeed, this uncertainty of future conditions is typically used to justify the Treasury’s prerogative to initialize policy reform – the exercise of which of course requires political prudence. One group of reformers likely not accounted for in other studies is the Judiciary, which Snape describes as “complementary” to the Treasury.
The fourth chapter is concerned with the actual reform process; particularly the interaction of the institutions and how the interactions affect public trust in the government. Key to the maintenance of public trust is the prudent use of policy reform in the service of values coming from an accepted ideology of the public or national interest. Snape provides a lengthy discussion of the politics of public interest in tax reform, specifically how public interest is used to promote a particular view of the people’s welfare and can thus be thought of as ideological. Politics is omnipresent in policymaking. The politics of taxation must necessarily have a strong element of calculation, but also needs a deliberative aspect designed to ascertain the public interest. The chapter contains a lengthy discussion of the stages of the reform process, from the initiation of reform by the government, through the process of developing and presenting the measures, and finally delivery of the actual reform. At each step, the need for political prudence is once again brought to the forefront, as Snape makes a strong case that tax reform can be viewed as political jurisprudence. In fact, the strong presence of politics and prudential reasoning throughout helps account for why tax policy is typically thought of as an ongoing, incremental process of “reform.”
Chapter 5, the final full chapter of the book, applies the preceding analysis to the last several years of British tax policy under the Labour administration. Snape’s analysis is one of public law outcomes, and is specifically concerned with addressing two common criticisms of tax law: its complexity and instability. These issues, while certainly important, are in Snape’s view unavoidable due to the institutional and procedural aspects discussed in prior chapters and the prudential responses to the characteristics of the corporate sector, such as its rapidly changing financial landscape. Efficiency and fairness remain the “immanent values” of corporate tax reform, and the recent reforms to the UK’s corporate tax system reflect these. For example, Snape references Labour’s ideological focus on using the tax code to correct so-called market failures by promoting investment in research as their attempt to address the efficiency value, and a focus on anti-avoidance rules as fairness-enhancing. Curiously, little mention is made in the Labour reforms to traditional definitions of efficiency (such as minimizing excess burden of taxation) or fairness (such as vertical or horizontal equality) which Snape cites as evidence of the use of corporation tax as an instrument to promote a specific view of public interest, namely the creation of a “fairer” society and an economy able to maximize its potential for growth. The prominence of ideology in policymaking and the use of corporate taxation as an instrument for economic engineering provide further evidence of tax reform as political jurisprudence. [*16]
The ambitious scope of the project does occasionally lead to the book’s shortcomings. This is a dense book, full of historical details, painstaking explanations of subtle differences in theory, and references to so many organizations, pieces of legislation, and technical terms that a ‘Table of Abbreviations’ is included (and welcome!) at the outset. The level of complexity and the degree to which so many of Snape’s arguments are intertwined with one another lead the author to frequently refer to either discussions from previous chapters in the book or to arguments he intends to fully develop in later chapters. This device is used so often that it becomes distracting at times, and one wonders if a different organization of the chapters (or their content) may have led to increased clarity. The book also presupposes a high level of knowledge of the British political system, so American readers (myself included) may find themselves needing to quickly research some of the events or individuals referenced in order to fully understand the nuances of the arguments. Economists (again, myself included) will likely be surprised by the lack of reference to public choice analysis in the core arguments in the book; when public choice is mentioned, it is done so generally and quickly moved on from, even where clear linkages between public choice and the main argument exist (such as the discussion in Chapter 3 of the lack of accountability of appointed government officials and a reliance on expertise from those with a vested interest, which parallel bureaucracy and regulatory capture theory, respectively). As Snape is not an economist by training, this would be easy to overlook but for the fact that political economists are among the groups to which to book is explicitly addressed.
Finally, while Snape makes a strong case for understanding corporation tax law as political jurisprudence, his reliance on political prudence and the need of policymakers to retain the trust of the governed as an explanation for many specific examples of corporate tax reform runs the risk of approaching the “simple solutions” he expressly sought to avoid; for instance in the final chapter he offers the conclusion, “Prudence may require a degree of complexity in certain circumstances…but not in others. Likewise, prudence may require stability in some cases but not in others. The Corporate Tax Road Map explicitly recognizes these points” (p.221). The book is at its best when it instead focuses on his main task: providing a comprehensive analysis of the intricacies of corporate tax policymaking. Thankfully, the book by and large stays on this track, and therefore makes a worthwhile and meaningful contribution to the literature. Snape’s willingness to embrace the ‘messiness’ of the details instead of attempting to draw simple conclusions from complex phenomenon is a refreshing departure from more technical writing on the subject of taxation.
Besley, Timothy. 2007. Principled Agents? The Political Economy of Good Government. Oxford: Oxford University Press.
Copyright 2013 by the Author, George R. Crowley