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On the Timeliness of Tax Reform

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  • James R. Hines Jr.

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8909.

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Date of creation: Apr 2002
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Publication status: published as Hines, James R., Jr. "On The Timeliness Of Tax Reform," Journal of Public Economics, 2004, v88(5,Apr), 1043-1059.
Handle: RePEc:nbr:nberwo:8909

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  1. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 43(2), pages 221-236, November.
  2. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 211-16, May.
  3. Roger H. Gordon & James R. Hines, Jr. & Lawrence H. Summers, 1987. "Notes on the Tax Treatment of Structures," NBER Chapters, National Bureau of Economic Research, Inc, in: The Effects of Taxation on Capital Accumulation, pages 223-258 National Bureau of Economic Research, Inc.
  4. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 479-89, March.
  5. Bhattacharyya, Sugato & Nanda, Vikram, 2000. "Client Discretion, Switching Costs, and Financial Innovation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 13(4), pages 1101-27.
  6. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  7. Levmore, Saul, 1993. "The Case for Retroactive Taxation," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 265-307, June.
  8. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, Elsevier, vol. 42(1), pages 1-45, June.
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Cited by:
  1. Mihir A. Desai & Dhammika Dharmapala, 2005. "Corporate Tax Avoidance and Firm Value," NBER Working Papers, National Bureau of Economic Research, Inc 11241, National Bureau of Economic Research, Inc.
  2. Slemrod, Joel, 2004. "The Economics of Corporate Tax Selfishness," National Tax Journal, National Tax Association, National Tax Association, vol. 57(4), pages 877-99, December.
  3. Budryte, Alge, 2005. "Corporate income taxation in Lithuania in the context of the EU," Research in International Business and Finance, Elsevier, Elsevier, vol. 19(2), pages 200-228, June.
  4. Fox, William F. & Luna, LeAnn, 2002. "State Corporate Tax Revenue Trends: Causes and Possible Solutions," National Tax Journal, National Tax Association, National Tax Association, vol. 55(3), pages 491-508, September.

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