Countries often succeed in implementing fundamental tax reforms. Sometimes, however, tax reform proposals never leave the drawing boards of studies departments or ministries of finance. In other cases, the tax reforms that are implemented have been revised to such an extent during the reform process that they no longer – or only partially – serve the original tax reform objectives. It also happens that the initial reform objectives are scaled down “pre-emptively”, as policy makers anticipate the obstacles that will have to be overcome and conclude that the cost would be too high or the prospects for success too uncertain to justify risking their political capital. In order to make growth-oriented tax reforms happen, policy makers have to be aware of the major challenges they are likely to face during the tax reform process. This chapter therefore explores the most important environmental factors that influence the reform process, focusing on the circumstances that explain when these objectives and environmental factors may become an obstacle to the design and implementation of tax reforms.

Policy makers can follow certain strategies to make growth-oriented tax reform happen. These strategies help them overcome or circumvent obstacles to tax reform and allow policy makers to reconcile the different efficiency, fairness and wider tax policy objectives. Even though these strategies do not offer a menu that automatically can be applied to all possible tax reforms in OECD countries, the analysis that follows will offer insights that policy makers may find useful in facing the challenging task of implementing growthoriented tax reforms.

Chapter 5 discusses in more detail to which degree it is optimal to implement the “tax and growth” recommendations discussed in the first chapter of this report. The chapter mainly focuses on the implementation of tax-cut-cum base broadening reforms with respect to property, consumption, personal and corporate income taxes. The discussion in this chapter clarifies that the “tax and growth” recommendation to broaden the different tax bases does not necessarily imply that it would be optimal to abolish all tax expenditures. The growthoriented VAT base broadening recommendation, for instance, does not exclude that some goods and services receive a different tax treatment, either by taxing them at reduced rates or by not including them in the tax base. Note, however, that this analysis is not an attempt to undermine the “tax and growth” recommendations. On the contrary, a nuanced analysis of the pros and cons of specific growth-oriented tax reforms might reduce some of the (mainly political) obstacles against these reforms. In addition, the analysis will present and discuss also tax-specific strategies that might help overcoming the obstacles against the implementation of the “tax and growth” recommendations.

The tax and growth recommendations as well as the strategies to overcome the growthoriented tax reform obstacles are of special interest because of the global financial and economic crisis. On the one hand, it is sometimes argued that the crisis might facilitate tax reform. The political economy obstacles against fundamental tax reform might be easier to overcome during a crisis, especially because of the increased pressure to raise more tax revenue in order to restore public finances and because of the pressing need to tackle the economic problems and to put the economy back on a high-growth path.