Tax Reform in Perspective

Abstract

The way in which taxation influences economic growth is a matter which has preoccupied economists ever since taxes were first levied. It is not only the economy which feels the impact of taxes; political developments are also affected. There are numerous examples of political developments with a fiscal background. Many a king was deposed as a result of a tax rise. In the Netherlands a 10 per cent turnover tax — modest by our modern standards — was one of the reasons, 400 years ago, for a conflict to erupt which lasted for 80 years. Thankfully, our present tax troubles are less long-drawn-out, and ′furthermore we no longer drag the crown into our conflicts with the tax authorities. The fact that in our modern times uncrowned heads, meaning politicians, get caught in the line of fire when feelings run high about taxation is evidenced by the situation in the United Kingdom. What drastic interventions in industrial relationships and conflicts within and outside the British Government were unable to achieve, that is to undermine the almost iron position of the former Prime Minister, was brought about by the commotion around the poll tax. Finding the best possible tax system, namely one that is generally accepted and at the same time causes the least possible disturbance of the economic process, seems to be more difficult than a number of academic studies on this subject would have us believe.