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Lessons for Tax Policy in the Great Recession

While policy makers struggle with identifying and enacting the appropriate short-term policy response to the recent financial crisis and economic downturn, both academics and policy makers are examining the causes of the crisis and what lessons this might bring to bear on longer-term policy. With near unanimity attention to both the causes and appropriate long-term policy response has focused on the financial sector, although fiscal policy, including tax policy, has certainly figured prominently in countries’ short-term policy response to the economic contraction. In recent months, though, officials from two international organizations, the IMF and the OECD, have produced reports addressing what aspects of the tax system may have helped cause or exacerbate the crisis, and whether tax policy needs to be re-evaluated in light of the recent events. In this article OTPR Director Joel Slemrod offers some speculations about the lessons for tax policy, and the analysis of tax policy, from the Great Recession. What did we get wrong? What did we underestimate the importance of? What do we need to think more about?