Shaviro discusses financial crisis in tax policy workshop
On April 30, Daniel Shaviro, Wayne Perry Professor of Taxation, participated via Internet telephone in a workshop, “The Tax Policy and the Financial Crisis,” sponsored by Bocconi University in Milan, Italy.
In a presentation entitled “The 2008-09 Financial Crisis: Implications for Tax Reform,” Shaviro described a number of defects in the tax system that may have contributed to the financial crisis, including incentives for excessive leverage, tax preferences for home ownership, and the tax rules for derivatives and executive compensation. He also noted that the nonrefundability of corporate losses, while it discourages risk-taking, was poorly designed to deter the sort of bad risk-taking (with a negative expected return beyond the very short-term) that companies such as AIG engaged in. Shaviro concluded that political factors continue to impede desirable tax reforms, especially given that the bad tax rules' contribution to what happened was not demonstrably large, but that lowering corporate tax rates—which many countries are inclined to do in response to global tax competition—may have the desirable secondary effect of reducing tax incentives for excessive corporate leverage.