Is London really the most-taxed city? Banks accused of cherrypicking data
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Taxes, subsidies and price controls, Fiscal policy, Information failure
What happened
A banking lobby group claims London is the most-taxed city, but campaigners say its figures are cherrypicked because the major rival Paris is left out of the comparison.
The economics
This shows how tax policy affects firms' location choices and competitiveness: if the government raises taxes on banks, firms may relocate to lower-tax cities, so the lobby uses comparative data to pressure the government. Selectively presenting data is also an example of information asymmetry and information failure, as policymakers may be misled into a suboptimal tax decision.
Evaluation
However, tax levels are only one factor in location decisions—regulation, talent and market size matter too; different comparison bases change the conclusion, and there is a trade-off between short-run tax revenue and long-run loss of investment.
Practice question
Using this example, discuss how a government should weigh tax revenue against business competitiveness when raising taxes on banks, and explain the possible effects of information asymmetry.
Where it fits in the syllabus
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- Fiscal policy: The government changes spending and taxation to influence aggregate demand and economic activity.
- Information failure: One side of a deal knows more than the other, so the market allocates resources badly.
- IB Economics: Government Intervention and Market Failure, Fiscal and Monetary Policy
- A-Level Economics: Government Microeconomic Intervention, Economic Policy, Market Failure
- AP Macroeconomics: National Income and Price Determination, Long-Run Consequences of Stabilisation Policies
- AP Microeconomics: Supply, Demand and Market Equilibrium, Market Failure and the Role of Government
- IGCSE Economics: Government Intervention, Government Macroeconomic Policy