Insights From a Tax-Systems Perspective

The tax-systems perspective considers a variety of costs and behavioral margins often ignored in standard tax analysis: administrative and compliance costs, evasion and avoidance behavior, and multiple non-rate tax-system instruments (e.g., withholding and public disclosure). We show how the standard optimal tax framework can be augmented to include these new sources of cost and behavioral response by considering some enduring tax policy questions: What is the optimal commodity tax base breadth? How does enforcement effort targeted to avoidance behavior affect optimal progressivity? What fraction of returns should be audited? Should small firms be excluded from a tax system? ∗This article is an edited extract from the forthcoming book Tax Systems by Joel Slemrod and Christian Gillitzer, published by The MIT Press in 2014. Joel Slemrod delivered the Richard Musgrave Lecture 2013, in Munich on April 11, based on this material.