The 28th Barcelona GSE Lecture, "Policy insights from a tax-systems perspective" was delivered at Banc Sabadell Auditorium on October 21, 2013 by Prof. Joel Slemrod (Ross School of Business, University of Michigan).
In his lecture, Prof. Slemrod outlined the types of costs associated with taxation. In addition to administrative costs and compliance costs, he mentioned a third cost that is part of the standard "toolkit" for economists.
"In graduate school in Economics we spend most of our time thinking about the costs of taxation that come because people and businesses change their behavior," Prof. Slemrod said. "When we tax labor income, people might work less. When we tax the return to savings, they might save less. When we tax the return on investment, businesses might invest less. Those are all costs of raising taxes that are in our standard toolkit."
Professor Slemrod proposed adding some other kinds of behavioral responses, such as risk aversion to the consequences of tax evasion, to the economist's toolkit for evaluating taxation policy.
"An optimal tax-systems approach changes the answers to classic optimal tax questions like how progressive the tax system should be, but it also raises questions that we couldn't answer before," Prof. Slemrod said. "How many resources should a country devote to enforcing its tax system? What's an optimal auditing structure? How do you collect information? How do you involve firms? If higher tax rates on the rich would induce taxable incomes to move off-shore, does that mean we should abandon the attempt to increase top tax rates? Or does that mean we should crack down on the flight of capital? Or a little of both? This is the kind of question which I think is central to the tax policy of many countries, that we can talk about with optimal tax systems."
Video: Highlights from the 28th Barcelona GSE Lecture
Professor Slemrod concluded with the reflection that formulas and standard tax analysis are disconnected from the reality of the world that economists and policymakers face. "We need to expand our analysis to include these phenomena which are prominent in the formulation and implementation of all countries' tax policies," he said.