18-26. What is the impact of Microsoft’s Irish subsidiary on the Irish economy? Taxation of business income is always a contentious public policy issue. Firms, tax lawyers, and accountants continually engage in cat-and-mouse clashes with their national tax authorities. The former group strives to minimize the tax burden imposed on their businesses, asserting that they have a fiduciary duty to their shareholders to do so. The latter group responds that they are charged with the task of ensuring that all the taxes owed to the government are appropriately and legally collected. Although the battle of wits, lawsuits, and lobbying is intense between domestic firms and domestic tax authorities, it pales in comparison to the company-government wars fought over international taxation.

Most politicians care little about the nuances of the benefits of comparative advantage, the productivity gains generated by specialization of labor, or the deleterious impact of trade barriers. Their concerns are focused on job creation and tax revenue, and they are willing to adjust their national tax codes if doing so stimulates the local economy.

The result is wide variations in corporate income taxes among countries. For instance, in the United States, the federal corporate income tax rate is 35 percent, while in Canada it is 16.5 percent, but only 12.5 percent in Ireland.