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Grandfather Rules and the Theory of Optimal Tax Reform

In: TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow


  • George R. Zodrow


This paper analyzes grandfather rules (GR) within the context of the ‘optimal tax reform’ problem and a reform that eliminates differential capital taxation. Two general conclusions are suggested. First, GR can be a very effective reform implementation tool. Appropriately structured GR can convert potential ‘losers’ from reform into gainers so that the reform becomes Pareto-improving; alternatively, GR can often be used to distribute the gains from reform more equitably. Second, GR should nevertheless be used with caution. Market adjustments often imply that losses are sufficiently small that little grandfathering is needed; moreover, the effects of GR are very sensitive to the length of time they are in force, and their implementation may lead to efficiency losses.

Suggested Citation

  • George R. Zodrow, 2019. "Grandfather Rules and the Theory of Optimal Tax Reform," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 3, pages 59-93, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789811205149_0003

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    Cited by:

    1. Herman Vollebergh & Jan Vries & Paul Koutstaal, 1997. "Hybrid carbon incentive mechanisms and political acceptability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(1), pages 43-63, January.
    2. Levinson, Arik, 1999. "Grandfather regulations, new source bias, and state air toxics regulations," Ecological Economics, Elsevier, vol. 28(2), pages 299-311, February.
    3. Ackerman, Frank & Biewald, Bruce & White, David & Woolf, Tim & Moomaw, William, 1999. "Grandfathering and coal plant emissions: the cost of cleaning up the Clean Air Act," Energy Policy, Elsevier, vol. 27(15), pages 929-940, December.
    4. Mingran Wu, 2023. "The impact of eco-environmental regulation on green energy efficiency in China - Based on spatial economic analysis," Energy & Environment, , vol. 34(4), pages 971-988, June.


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