A fair assessment would conclude that well designed
tax policies have the potential to raise economic growth,
but there are many stumbling blocks along the way and
certainly no guarantee that all tax changes will improve
economic performance. Given the various channels
through which tax policy affects growth, a growthinducing
tax policy would involve (i) large positive
incentive (substitution) effects that encourage work,
saving, and investment; (ii) income effects that are small
and positive or are negative, including a careful targeting
of tax cuts toward new economic activity, rather than
providing windfall gains for previous activities; (iii) a
reduction in distortions across economic sectors and
across different types of income and types of consumption;
and (iv) minimal increases in the budget deficit.