Reason for uncertainty about tax rates is a key element of Baker, Bloom and Davis’s policy uncertainty index
Concept introduction:
Baker, Bloom and Davis produced several indices measuring uncertainty such as indices for policy related economic uncertainty and financial uncertainty as well as an overall uncertainty index that dates back to 1985. They developed another important index measuring tax policy uncertainty which was based on expiring tax legislation.
The most frequent references to policy uncertainty concern taxes, spending, monetary, and regulatory policy. Interestingly, while these four policy areas are the most frequent in levels, the increase in policy uncertainty since 2008 mainly reflects greater uncertainty about tax, spending and regulatory (particularly healthcare) policy. The policy uncertainty rose to unusually high levels from the 2007-2009 recession onwards − and they pointed to tax, spending, and regulatory policy as the main contributors.
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