Veronique de Rugy writes about a good example of the power of exit: corporate tax inversions.
To escape the U.S.’s high corporate tax rate, corporations do what they are supposed to do: make more money for their owners. So, they exit the U.S. and relocate to countries with lower corporate tax rates, even if only on paper.
Like with the Mylan Epi-Pen example, some politicians wag their finger at these corporations and say, No Fair!
But, corporate tax inversions are the predictable result of having a higher tax rate than other countries.
The No Fair! crowd’s solution is to build the corporate tax equivalent of the Berlin Wall and shoot any corporations that try to defect across it. They want to restrict corporations’ power of exit.
A better solution is a competitive corporate tax rate.