Certain Effects of Uncertain Taxes

51 Pages Posted: 26 Dec 2018

See all articles by James R. Hines Jr.

James R. Hines Jr.

University of Michigan; NBER

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Date Written: December 2018

Abstract

This paper explores the implications of tax rate uncertainty, identifying circumstances in which revenue-neutral tax rate variability increases profitability, economic activity, and the efficiency of resource allocation. Furthermore, with heterogeneous taxpayers, tax rate variability is shown to perform an efficiency-enhancing screening function, imposing heavier expected tax burdens on less responsive taxpayers. And while efficient tax uncertainty enables governments to reduce average costs of taxation, it necessarily increases the marginal cost of taxation over some ranges of expected revenue, so may reduce efficient levels of government spending.

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Suggested Citation

Hines, James Rodger and Keen, Michael, Certain Effects of Uncertain Taxes (December 2018). NBER Working Paper No. w25388. Available at SSRN: https://ssrn.com/abstract=3306097

James Rodger Hines (Contact Author)

University of Michigan ( email )

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NBER

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Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

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Washington, DC 20431
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

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United Kingdom

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