TAX REFORM: SELECTED ISSUES. ESRI RESEARCH SERIES NUMBER 12 OCTOBER 2009

Callan, Tim and Keane, Claire and Walsh, John R. (2009) TAX REFORM: SELECTED ISSUES. ESRI RESEARCH SERIES NUMBER 12 OCTOBER 2009. UNSPECIFIED.

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Abstract

The report of the Commission on Taxation (2009) documents an agenda for the reform of taxation at a time when the public finances are under very severe pressure. It would undoubtedly be easier to reform taxation at a time when the overall tax take could be reduced, rather than when gains and losses must balance out in a revenue-neutral fashion. It is still more difficult if reforms have to be introduced at a time when, for macroeconomic reasons, the overall tax take must rise.1 But even when facing the task of increasing revenues, there are choices to be made between increasing rates on the existing base, and broadening the base, without an increase in rates. As Poterba (2009) stated in this year’s Geary Lecture, a touchstone result in public finance is that …the distortionary cost of a tax system depends not on the level of tax rates but on the square of tax rates.2 This makes a strong argument for base-broadening rather than rate increases, which informs much of the report of the Commission on Taxation.

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