Interactions among multiple partial budget solutions

This paper explains the benefit of taking a holistic approach to evaluating fiscal reforms. Different state taxes can interact in complicated ways, making the pros and cons of altering any one of them difficult to evaluate without considering all of them simultaneously. The discussion pertains primarily to tax policy, but the same point applies to government expenditures as well. Holistic analysis is valuable but extremely difficult, and so most analyses focus on one change at a time. To explain the holistic approach, examples are drawn from two particular areas. First, taxes and budget policies interact with respect to their distributional effects. Second, they interact with respect to measures of “excess burden” that reflect the economic inefficiency of tax and budget policy. In both cases, the combination of effects is different from the sum of the parts.