On the Timeliness of Tax Reform

James Hines

No 8909, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes efficient reactions of policy makers to unanticipated tax avoidance. The strategy of many governments is to reform their tax laws and regulations to reduce the effectiveness of elaborate tax avoidance techniques as soon as they are identified. This tax reform process can successfully prevent the widespread use of new tax avoidance strategies, and in that way prevents erosion of the tax base. But it also encourages the rapid development of new tax avoidance techniques by innovators whose competitors are thereby unable to copy their methods -- as a consequence of which, there can be a great premium on being the first to develop and use a new tax avoidance method. An activist reform agenda may therefore divert greater resources into tax avoidance activity, and lead to a faster rate of tax base erosion, than would a less reactive government strategy. Efficient government policy therefore often entails a slow and deliberate pace of tax reform in response to taxpayer innovation.

JEL-codes: H21 H25 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-pbe
Note: PE
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Citations: View citations in EconPapers (2)

Published as Hines, James R., Jr. "On The Timeliness Of Tax Reform," Journal of Public Economics, 2004, v88(5,Apr), 1043-1059.

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