Does inequality constrain the power to tax? Evidence from the OECD

Md. Islam (), Jakob Madsen and Chris Doucouliagos

European Journal of Political Economy, 2018, vol. 52, issue C, 1-17

Abstract: We investigate the consequences of income inequality on the income tax-to-GDP ratio for 21 OECD countries over a long time period spanning 1870 to 2011. We use several identification strategies, including using unionization as a new IV for inequality. In contrast to predictions from median voter models, we find that rising inequality significantly depresses the income tax ratio. This finding is robust to alternative measures of inequality, treatment for endogeneity, and model specification. The tax ratio increases with the degree of democracy. Inequality also reduces the indirect tax ratio, alters the tax structure, and moderates government spending as a share of GDP.

Keywords: Tax ratio; inequality; Fiscal policy; OECD (search for similar items in EconPapers)
JEL-codes: E25 H2 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S017626801630057X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Does Inequality Constrain the Power to Tax? Evidence from the OECD (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:52:y:2018:i:c:p:1-17

DOI: 10.1016/j.ejpoleco.2017.02.006

Access Statistics for this article

European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

More articles in European Journal of Political Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().