The primary aim of this project is to study tax reform in an open economy and by doing so add knowledge to the evaluation process of the 2006 Norwegian tax reform. The first part of the project will address tax reform issues in the Norwegian economy and r elate them to the international debate of tax reform. Desai and Hines (2003) introduce capital ownership neutrality (CON) and national ownership neutrality (NON) as benchmarks for evaluating the desirability of international tax reforms. Tax systems satis fy CON if they do not distort the ownership of capital assets, and satisfy NON if they promote the profitability of domestic firms (and therefore home welfare). These principles may be in conflict with the principles of capital import or export neutrality . Furthermore, there is a fierce public debate over redistribution, and evidence suggests that income inequality is rising and that globalization is affecting the middle income groups negatively. This poses a formidable challenge to the Nordic welfare sta te model, and it is an important task to identify the characteristics of a good tax system for a small open economy, taking into account the trade-off between efficiency and equity. Part of this project will do just that and convey it to a broad audience in the form of a survey article.
The second part will derive optimal fiscal policy rules when we take into account the intertemporal and intergenerational redistribution of tax burdens and assoicated distortions.