The Importance of Asymmetric Tax Policy and Dangers of Aggregation


  • I thank Alan Auerbach, Kevin Hassett, Glenn Hubbard, Alvin Rabushka, and participants of the AEI’s “The Transition Costs of Fundamental Tax Reform” for their many useful comments. I acknowledge the support of NSF grant SBR-9708991.


Existing tax policies have many complex features that make distinctions across goods, factors, and financial structures that distort economic allocations. Their importance is ignored when tax policy is summarized by an “effective” tax rate. In fact, the losses due to asymmetries are often larger than the losses due to the level of taxation.