Experimenting with tax policy: a way forward or mission impossible?

What the paper says

While experimental governance approaches are growing in popularity across the globe, there has been only limited scholarly discussion about the use of experiments in tax policy. Our article addresses this gap with an empirical study of Finland and Estonia. We compared the experiences of these two countries with tax policy experimentation to shed light on the factors that foster and hinder it. Our study shows that although tax policy experiments could potentially serve as a useful instrument for policymakers to address the challenge of adjusting tax policies in a complex and rapidly evolving context, in practice, tax policy experiments face various challenges arising from political motivations, including concerns with horizontal equity and electoral timeframes. Furthermore, limited capacities and resources and the existing features of the tax system can hinder the use of experiments in tax policy design. While experiments in tax policy can be politically challenging, they are not impossible, as evidenced by multiple experiments carried out by the Finnish government over the past decades. Our empirical study highlights that tax policy experimentation is likely to be more feasible if experiments are conducted with tax benefits, concern corporate taxes, are legitimized by sound legal framing, and avoid randomization.