2026 Economics Nobel Laureate Robert Hall Helped Lay Foundation for Pro-Growth Tax Reform

Last week, economists Robert Hall and Michael Woodford won the 2026 Nobel Memorial Prize in Economic Sciences “for microeconomic foundations of macroeconomic stabilisation.” The award recognizes their foundational contributions to New Keynesian macroeconomics, including how individual decisions by households and businesses shape broader economic outcomes.

Robert Hall is also well known in the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy world. In a landmark 1967 paper written with Dale Jorgenson, Hall helped establish how tax policy affects business investment decisions. Businesses invest when the expected return exceeds the cost of depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco, financing, and taxes. This combined hurdle is known as the user cost of capital.

The Hall-Jorgenson framework shows quantitatively how tax policy can impact both the level and timing of business investment, providing the foundation for why delaying depreciation deductions raises the cost of investment by raising the cost of capital. Immediate expensing, on the other hand, removes the tax penalty on marginal investment imposed by inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin and the time value of money.

Additionally, Hall is known for being the co-author of the Hall-Rabushka flat tax. While some focus on the tax proposal’s flat rate design—the original proposal used a 19 percent flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. rate—it is also, at its core, a tax aimed at consumption.

Policymakers can target a consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or income taxes where all savings are tax-deductible. base in many different ways; a value-added tax (VAT) targets value added at each stage of production, while the Hall-Rabushka flat tax splits the base out to tax businesses on their cash flow and individuals on their wages.

Businesses deduct the cost of investment and households pay tax on wages above an exemption, without being taxed twice on investment returns such as interest, dividends, and capital gains. The proposal therefore eliminates the income tax’s bias against saving and investment by providing expensing and avoiding additional taxes on investment returns.

Hall and Rabushka’s work inspired subsequent proposals to tax consumption progressively, including the X-tax proposed by economist David Bradford. The X-tax keeps a cash flow tax for businesses and applies a graduated tax rate for household wages with a top household rate matching the business tax rate. This design helped inform the design of destination-based cash flow taxes (DBCFTs) as a policy option to reform the business tax code.

While the US remains a hybrid tax system between income and consumption tax bases, Hall’s tax policy legacy contributed to the policy motivation behind the 2017 Tax Cuts and Jobs Act, which moved the US tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. toward consumption by reviving 100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs.. The 2025 reconciliation law made 100 percent bonus depreciation permanent and restored domestic R&D expensing, keeping that progress in the tax code.

Hall’s research helped economists understand how taxes distort investment decisions, while his work with Rabushka shows how to minimize those distortions. Although the US remains far from a pure consumption tax, Hall’s work informs efforts to reduce the tax burden on investment, improve neutrality, and promote long-run economic growth.