Abstract - This paper considers why so many questions about the economic effects of tax reforms remain unanswered, and draws implications for how economics can be used to evaluate and design tax changes. Tax reforms have proven difficult to assess for a variety of reasons, all related to the nonexperimental nature of empirical economic analysis. Though this makes continued reliance on theoretical predictions necessary evaluations should distinguish clearly between theory and evidence. The paucity of evidence also militates against the enactment of major tax reforms, for dependence on such reforms limits our ability to adapt tax policy in response to new evidence.

INTRODUCTION

The inability of economic research to provide clear and precise information about the economic impacts of tax policies has long frustrated policymakers. Although not necessarily written with this as their primary objective, the other papers in this symposium by Agell, Englund, and Södersten and Engen and Skinner (hereafter AES and ES) illustrate why such information has proved so hard to uncover. In this brief paper, I will attempt to assess why so many questions remain unanswered and consider the implications for how economics can be used to evaluate tax reforms and how the reforms themselves should be structured.