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A positive theory of tax reform

Ilzetzki, Ethan (2015) A positive theory of tax reform. CFM discussion paper series (CFM-DP2015-26). Centre For Macroeconomics, London, UK.

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Abstract

The political impediments to reform and the forces allowing its success are studied in a model where the tax base and statutory rate are separate instruments of tax policy. The model predicts that big bang reforms—large changes in the tax code–may be easier to enact than marginal reforms. Preferences over the tax base face a tipping point where even the beneficiaries from tax exemptions support reform. At such a “reform moment”, tax reform is Pareto improving. Politically feasible tax reform occurs when fiscal needs are large, but may nonetheless involve reductions in marginal tax rates. There is strategic complementary in lobbying for tax exemptions, resulting in multiple equilibria. Evidence from tax-base changes in a panel of OECD countries supports a number of the main predictions.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2015 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy-Making and Implementation
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 14 Dec 2017 09:44
Last Modified: 06 Mar 2019 00:04
URI: http://eprints.lse.ac.uk/id/eprint/86283

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