Accepting the Limits of Tax Law and Economics
68 Pages Posted: 24 Jan 2012 Last revised: 2 Dec 2014
Date Written: January 23, 2012
This Article explores the limits of tax law and economics, attributing them to the unique complexity of the tax optimization problem. Designers of the optimal tax system must account for the impossibility of deterring socially undesirable behavior, provide for redistribution, and minimize social costs on the basis of assumptions that are laden with deeply contested value judgments, pervasive empirical uncertainty, or both. Given these challenges, it is hardly surprising that economic theory has a much weaker connection to the content of our tax laws and their enforcement than it does to the content and enforcement of many other legal regimes. This weakness has a profound effect on the debates about the fundamental features of our tax system. It shapes the meaning of the foundational tax concepts. It affects many familiar arguments about anti-avoidance rules and sanctions. And it extends to evaluating outright tax evasion. In sum, the limits of tax law and economics shape every aspect of tax law and tax administration. At the same time, accepting these limits shifts focus to several research agendas where tax law and economics will continue to make valuable contributions to the project of improving our tax system.
Keywords: law and economics, optimal deterrence, optimal tax theory, tax policy, tax enforcement
JEL Classification: H21, H23, H26, K10, K34, K42
Suggested Citation: Suggested Citation