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Tax Theory

Taxation is not just about the technicalities of tax law. The LSE Tax Research Hub is committed to understanding tax through the principles that underlie it. This approach includes studying how taxes ought to look theoretically, as well as how taxes actually develop in light of real world economic, political and social considerations, and how taxes operate on the ground: how they are administered and how taxpayers respond to their imposition with compliance, avoidance or evasion. Thus our research on tax principles falls into three areas: theories of taxation, tax policy and its implementation in tax law, and the principles and practice of tax administration. In each of these areas we use a wide range of interdisciplinary approaches, including economics, sociology, political science, game theory, philosophy, computing and anthropology, which reflect the wide backgrounds of our research team.

Tax and Social Justice 

Taxation funds government and can be used to promote or deter certain activities, but it is also tool for distributing resources and realising particular visions of a just society. The LSE Tax Research Hub aims to explore several sides of the interaction between taxation and theories of social or distributive justice. One aspect of our research focuses on policies for the taxation of wealth, and tries to evaluate them using a wide range of academic perspectives, including political theory, economics and sociology, and law. Current projects include studies on tax planning by the very rich (‘the top 0.1%’), capital gains and measurement of inequality, the UK’s ‘non-dom’ tax regime, and tax and international migration. Another aspect examines the normative foundations of taxation, especially the relation between taxation and theories of just distribution. Current projects include studies on the normative foundations of the ‘benefit principle’ and its relationship with the ‘ability-to-pay’ principle, both in the national and the international context.

 

Theories of Taxation

Our work on theories of taxation covers a range of complementary approaches. We look at how economic theories shape ideas about the operation of tax, including optimal tax theory, the taxation of risk and economic rents, and the economics of the taxation of consumption (both through VAT and other taxes) and of wealth. We also look at how social and political structures and institutions shape the tax system, using approaches such as social theory and game theory. This is important in understanding behaviour such as tax planning and tax avoidance, both within domestic tax system and internationally, such as our work on transfer pricing.

Examples of this research subgroup include the following. Dr Ian Roxan, ‘Is VAT also a Corporate Tax? Untangling Tax Burdens and Benefits for Companies’, examines cases where VAT can impose a burden on holding companies. The illustration has implications for the principles of VAT, and for our understanding of taxes on corporations and their incidence, notably in the cases of digital sales taxes and destination-based cash-flow taxes.

Tax Policy and its Implementation

Being able to have impact through recommendations on tax policy we see as a vital part of our role in all areas of our research. Whether identifying the bases for a possible wealth tax, understanding what drives the international tax system, investigating the reality of tax litigation or delving into the structure of VAT, the results of our research are strengthened by looking at the extent to which underlying principles are, or are not, embodied in policy.

Examples of this research subgroup include the following. Dr Andy Summers is presently using tax administrative tax data to study tax planning by the very rich. His current projects include studies on capital gains and measurement of inequality, the UK’s ‘non-dom’ tax regime, and tax and international migration. Dr Ian Roxan, ‘Assuring Real Freedom of Movement in Direct Taxation’ in the Modern Law Review. The article argues that the distinction in EU law between discrimination and legitimate competition between tax systems can be understood by looking at whether a cross-border move brings a symmetrical change in circumstances, such as the rate of tax, or imposes an asymmetric cost. Symmetric changes, such as differences in tax rates, are legitimate differences, whereas costs, which impose only burdens, either in one or both directions, are obstacles to free movement. In 2000 Dr Roxan won the Wedderburn Prize for his article. Dr Andy Summers is presently using tax administrative tax data to study tax planning by the very rich. His current projects include studies on capital gains and measurement of inequality, the UK’s ‘non-dom’ tax regime, and tax and international migration.

Tax Administration

In the Tax Research Hub we have built on the long tradition in the LSE Law School of innovative approaches to administration. This tradition includes the development of core ideas of responsive regulation. No tax policy, however well-informed, can be successful without an effective system of tax administration. Our work looks at how taxes are administered in practice and how taxpayers respond. We look at the legal side of tax administration, including the control of avoidance and the availability of legal mechanisms for governments to investigate taxpayers and enforce tax rules, as well as the resolution of tax disputes. We also look at the practical side of tax administration, notably how tax administration responds to the increasing digitalisation of the economy, how digital technology can be used to improve tax administration, and the implications for tax administration in emerging and developing economies.

Examples of this research subgroup include the following. Eduardo Baistrocchi has focused on the problem of tax administration in the developing world. Representative publications are Tax Disputes under Institutional Instability: Theory and Implications, Modern Law Review (2012), Volume 75, Issue 4, 547-577;  The Use and Interpretation of Tax Treaties in the Emerging World: Theory and Implications, British Tax Review (2008), No. 4, 352-391.

Dr Michael Blackwell is case notes editor of British Tax Review and has published especially on aspects of tax administration and matters relating to tax planning and avoidance. Dr Andy Summers is presently using tax administrative tax data to study tax planning by the very rich. His current projects include studies on capital gains and measurement of inequality, the UK’s ‘non-dom’ tax regime, and tax and international migration.