Brys, Bert, “Making fundamental tax reform happen,” in “Making Reform Happen, Lessons from OECD Countries,” OECD, p. 101-128, 06/15/10

“A shift from direct towards more indirect taxes – a tax reform that is considered to be growth-promoting (Johansson et al., 2008) – through an increase in the statutory VAT rate might increase tax evasion and cross-border shopping and might stimulate the informal sector.  It might also result in pressures for wage increases, leading to inflation and a corresponding loss of competitiveness, and leading to an increase in the unemployment rate.  If, however, the VAT rate increase is offset by a reduction in the direct taxation of labour, then the overall effect on competitiveness could be positive: this is because domestic producers will reap the full benefit of the cut in direct taxes, but the increase in VAT will be “shared” with foreign competitors, because experts are zero-rated for VAT purposes and imports are taxed at the same rate as domestically produced goods.  A shift from direct to indirect taxes might therefore be achieved by broadening the VAT base as well as (or even instead of) increasing the VAT rate.  As a general rule, there is much to be said for trying to keep most bases broad and most rates low.” p. 104
“The mere announcement of a tax reform can have an impact on agents’ behavior even before it is implemented.  The impact on short-run growth might be negative if, for instance, agents postponed investment decisions until the new tax rules were in force.  Problems may also arise if, on the contrary, agents rush to make the most of a tax distortion before it is removed.  The opposite result holds as well: the reduction or abolition of a growth-friendly provision could have positive short-term growth effects.  For example, the announcement of the reduction of an investment tax credit in the near future could bring forward investment and thus stimulate growth in the short run.  Similarly, the announcement of a future increase in the VAT rate, for instance, will bring forward purchases of durable consumption goods.  Whether or not this is desired will, of course, depend on the structural position of the economy at the time.  Announcement effects can thus create obstacles to the implementation of tax reforms or give rise to unanticipated distortions, especially if government cannot implement the reform immediately.” p. 107
“The evaluation of tax-policy reform implies addressing the impact of the tax reform on income distribution.  However, policy makers should bear in mind - and communicate to the electorate - that distributional goals should not be assessed on a tax-by-tax basis.  Alt, Preston and Sibieta (2008) argue that in order to pursue sensible tax policy, it is essential to see the tax system as a system rather than to consider its different elements in isolation.  Disconnected tax debates may be particularly counter-productive for the implementation of fundamental tax reform.  Broadening the VAT base, for example, might be difficult if the discussion of VAT-reduced rates on particular goods takes place in isolation.  The framing of the debate on recurrent taxes on immovable property in isolation will likewise hinder its adoption.  Alt, Preston and Sibieta (2008) argue that such framing could result from a lack of public understanding of the actual impact of different taxes and of the interconnectedness of the tax and benefit systems.   Discussing tax-policy reforms in isolation could reinforce this lack of understanding by allowing the tax-reform discussion to focus on individual taxes only.  Lobby groups might have an incentive to frame particular tax-policy reforms in isolation, but this approach is unlikely to be in the interest of the general public,” p. 113.