Document Type



Tax Law


An unexpectedly partisan political debate over redistributive tax measures has recently come to focus on fiscal transparency. In this debate, fiscal transparency and tax neutrality are often spoken of interchangeably. They are, however, distinct. Tax legislation is neutral if it does not influence economic choices. It is transparent if the public can understand how tax burdens are allocated and the reasons for their allocation. Neutrality and transparency differ therefore not only in their primary focus but also in the types of evidence that may support assertions concerning them. A feature of a tax system can only be said to be neutral ceteris paribus, because it is virtually impossible to know in detail how economic behavior will in fact respond to a tax measure. In contrast, average levels of information about how the tax law works provide reasonably firm evidence of transparency. Given these and other conceptual differences, I will argue here that, while the current debate fails to distinguish transparency and tax neutrality adequately, a fruitful approach to fiscal transparency may be implicit in it.

Section II surveys the simultaneous emergence of the industrial revolution, popular democracy, and income taxation in Europe and elsewhere, explaining how the very advantages that favored income as a tax base also created technical difficulties that soon resulted in nontransparent tax design. Section III briefly describes recent political debates in France, the United States, and elsewhere over tax subsidies for social policy ends. Section IV explains how United States experts and politicians have cast doubt on the foundations of the “tax expenditure” analysis of these subsidies. Section V analyzes other reasons for a growing interest in fiscal transparency and argues that talk of tax neutrality in the context of tax expenditure analysis should be replaced with a better focused understanding of fiscal transparency based on the ability of the public to understand complex tax measures. Section VI concludes that transparency provides a better analytical tool for some, but not all, fiscal analysis that now employs the rhetoric of tax neutrality.

Included in

Tax Law Commons