NATIONAL BUREAU OF ECONOMIC RESEARCH
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Certain Effects of Uncertain Taxes

James R. Hines Jr., Michael Keen

NBER Working Paper No. 25388
Issued in December 2018
NBER Program(s):Public Economics

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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Document Object Identifier (DOI): 10.3386/w25388

 
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