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Tax and modern monetary theory

Murphy, R. ORCID: 0000-0003-4103-9369 (2019). Tax and modern monetary theory. Real World Economic Review, 89(89), pp. 138-147.


Modern monetary theory (MMT) has played an important role in advancing understanding of the economic function of taxation, including by showing how it acts to “cancel” government spending as part of a spend-tax cycle. To date however, MMT has not fully explored the implication of these insights for how tax can also achieve social, economic and fiscal goals, as well as macroeconomic ones. This omission is addressed in this paper by suggesting that cash paid in tax is a residual figure arising from a plethora of decisions on tax bases, reliefs and allowances, as well as tax gaps that result from non-compliant taxpayer behaviour. The impact of this range of decisions and practices can be interpreted as a form of social policy with distributional and economic consequences. Such decisions and practices require systematic estimation and appraisal, as well as conscious management of their consequences, if effective control of the economy is to be maintained. It is suggested that this process can be supported by a modern theory of taxation (MTT) that, building on the understanding derived from MMT that tax is not a tool for government revenue maximisation, and can deliver new perspectives on the use of tax as a critical instrument in economic and social policy management.

Publication Type: Article
Publisher Keywords: tax, modern monetary theory, tax gaps, tax spillover, social policy, fiscal policy
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Departments: School of Policy & Global Affairs > International Politics
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