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Tax Policy and its contribution to the recession

The 2010 Brussels Tax Forum takes place this year on 1 and 2 March. It promises to be a fascinating event. Hosted in Brussels by the EU Commissioner responsible for Taxation and Customs Union the annual conference gathers many eminent policy makers, experts and stakeholders as well as members of the general public from all over the world and meets to discuss the pressing tax issues of the day.

The topic for this year's event is  'Tax Policies For A Post-Crisis World' with the focus on lessons to be learned from the global financial meltdown for tax policy, how best reform can be applied in the current context, and which reforms are viable. It seems that although economic conditions are still uncertain, the worst of the recession may now be over and there is enough clear blue water between the darkest days of the crisis and the present to start looking for clues. Now it might be possible to look back and apply a little informed analysis, to try and identify the causes of the downturn and at the same time identify ways in which future policy might prevent it happening again.

That's certainly what Thomas Hemmelgarn and Gaetan Nicodeme have attempted in their The 2008 Financial Crisis and Taxation Policy paper written for the European Commission's Directorate-General for Taxation and Customs Union and published in January. Whilst taxes are absolved from creating the crisis, some aspects of tax policy, they argue may have led to, 'increased risk-taking and indebtedness of banks, households and companies.' They propose that, 'tax incentives may indeed have exacerbated the behaviour of economic agents, leading them to wrong economic decisions.'

Fine food for debate and matters also touched upon by former chief economist at the World Bank, Joseph Stiglitz in his book Freefall. Stiglitz comes down hard on the 'system,' the ultra free-market ideologues at the US Treasury and the IMF as well as the manifestation of their policy in the forms of (for example) George Bush's tax breaks for the rich.

It's gripping stuff and there's an intriguing story to be told in the role that tax policy played in creating the recession and the role it will play in assisting recovery. Who said tax was boring?


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