What we lose when economists ignore people’s lived experience

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.

So true:

The IFS has said (pdf):

Much of the burden of business rates is passed on from the occupiers of non-domestic properties to the properties’ owners (if different), via reductions in the properties’ market rental values.

I believe this. But I sympathize with business owners who aren’t convinced. The question is: how is the burden passed on? One way is through rents being renegotiated – a process which favours bigger businesses against smaller landlords. Another way is by firms moving to cheaper premises, or threatening to do so. Even the latter entails costs – of researching rents on plausible premises and being distracted from the tough day-to-day job of running your business.

Even in cases where the burden of rates is passed onto landlords, business owners suffer hassle. Talk about tax incidence – even if it is true – underplays this hassle. Economists’ analysis of comparative statics overlooks the human difficulties of moving from one outcome to the other. Real life is lived in time lags and in disequilibria.

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