In this seminar Christian Gillitzer shows that an economic slump can induce a government to invest in fiscal capacity. Large negative income shocks stress the revenue raising capability of narrow tax bases, making an increase in tax base breadth desirable relative to its fixed implementation cost. A broader tax base enables revenue to be raised at lower tax rates, which reduces the efficiency cost of taxation. The behaviour of US state governments during the Great Depression supports the model: states experiencing larger than average negative income shocks were more likely to adopt a retail sales tax than were states experiencing smaller than average income shocks.

Christian Gillitzer is a Senior Economist in the Economic Research Department at the Reserve Bank of Australia. His research has focused on a range of topics in empirical macroeconomics and public finance. Christian holds a Bachelor of Commerce with Honours and a Bachelor of Science from the University of Melbourne, a MPA from Princeton University, and a PhD in Economics from the University of Michigan. Christian is co-author with Joel Slemrod of the book Tax Systems.

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A light lunch will be provided from 12.30 - 12.55pm.

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