Measuring the Impact of Tax Reform

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.