Certain Effects of Uncertain Taxes
James Hines () and
Michael Keen ()
No 25388, NBER Working Papers from National Bureau of Economic Research, Inc
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.
JEL-codes: H21 H22 (search for similar items in EconPapers)
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