Author:Matthew Weinzierl
Citation:66 National Tax Journal 263-74 (March 2013)
Abstract:Book Review: FROM OPTIMAL TAX THEORY TO TAX POLICY: RETROSPECTIVE AND PROSPECTIVE VIEWS by ROBIN BOADWAY (MIT Press, 2012, Cambridge, MA, 290 pages). The book achieves two goals remarkably well. First, the goal expressed in its title is to explain the lessons for real-world tax policy that are likely to be, and in some cases already have been, drawn from tax theory. Skepticism over the relevance of optimal tax theory has been around as long as the literature. But Boadway makes a compelling case that theory has led to, or at least supported, several of the main trends in modern tax policy. A second goal of the book is to review, selectively, the optimal tax literature. Naturally, as a series of lectures, that review is largely nontechnical. But Boadway’s expertise allows him to provide clear intuition for both the most important and some of the lesser-known results of the field, substituting for the clarity that formalism otherwise provides. The book’s third goal — prioritizing challenges to the theory going forward — is more speculative, and therefore its success in achieving it is more difficult to appraise. On one hand, Boadway is surely right to highlight three ways in which the simplifying assumptions underlying current models are problematic: governments cannot fully commit to policies, individuals differ in more than just income-earning abilities, and people’s behavior is not purely rational. These challenges are well-known and will keep theorists busy for some time. Boadway’s contribution here is to insightfully parse the specific ways in which these simplifying assumptions are, and are not, serious problems for the theory.

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