Lessons for Tax Policy in the Great Recession

While policymakers struggle with identitying and enacting the appropriate short-term policy response to the financial crisis and economic downturn of 2008, 2009, and perhaps beyond, both academics and policymakers are examining the causes of the crisis and what lessons this might bring to bear on longer-term policy. In this paper, I offer 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? One conclusion is that public finance economists need to better integrate the economic analysis of taxation with the concerns and expertise of macroeconomists, finance economists, and accountants. This is especially important for obtaining a better understanding of financial institutions, whose behavior is affected by the tax, accounting, and regulatory rules they face, rules that are inter-related but not coordinated.