Question

Discuss the tax policy implications of the saying “ an old tax is a good tax”

Answer 1

Market economies (and the firms operating in those economies) adapt to the various taxes imposed on business transactions. The longer a tax (or a specific tax rule) has been in effect, the better the business community understands it. When governments change the tax system, the business community must spend time and money studying and reacting to the change. Firm managers must reassess, or even modify, their tax strategies. Thus, any change in the tax environment is both costly and unsettling, even if the purpose of the change is to improve the environment.