Taxes on Businesses are Costs

Earlier this month I wrote about why businesses, even large corporations, cannot painlessly pass taxes on to their consumers. The main reason I cited is that such taxes, being assessed against the producer, are costs of production. Raising such costs increase the general minimum selling price for sellers, reducing the supply and quantity sold for the good in question.

Another response to such taxes, however, is highlighted by Andrew Moorflield, global head of oil and gas at Lloyds Bank. As he explained Monday at the Reuters Global Energy and Climate Summit, "In terms of new production that we're looking at financing, it is moving toward Norway and away from the UK." This shift from Britain's North Sea to Norway is due to a surprise tax imposed on the British oil industry. Such are the consequences of higher taxes. They reduce the incentive to invest, which in this case reduces the quantity of capital directed toward oil production in Great Britain. Incomes and jobs in the British oil industry will be lower than they would otherwise.