The relationship between tax structures and income inequality

Carlândia Brito Santos Fernandes, Marcos Roberto Vasconcelos, Marina Silva da Cunha and Thomas Obst
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Carlândia Brito Santos Fernandes: Universidade Estadual de Maringá
Marcos Roberto Vasconcelos: Universidade Estadual de Maringá
Marina Silva da Cunha: Universidade Estadual de Maringá

Revista Desarrollo y Sociedad, 2025, vol. 100, issue 4, 79-95

Abstract: The global rise in income inequality has heightened interest in how fiscal policy—particularly the compo-sition of tax revenues—affects income distribution. This study examines the relationship between gov-ernment revenues from direct and indirect taxes and income inequality, contributing to the tax incidence literature through three key innovations: it focuses on a recent period (2000–2012), compares countries with dif-ferent income levels and tax structures, and addresses endogeneity using the System Generalized Method of Moments (System GMM) estimator. The empirical analysis reveals that a greater reliance on indirect taxation is associated with higher income inequality, while a larger share of direct taxes correlates with reduced inequality. These patterns hold across both OECD and non-OECD countries. Given the higher Gini coefficients observed in non-OECD economies, the findings highlight the importance of enhancing tax progressivity as a policy strategy to reduce income disparities and promote more equitable economic development.

Keywords: Fiscal policy; tax structure; income distribution; economic inequality; developing countries (search for similar items in EconPapers)
JEL-codes: E62 H23 O15 O23 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:col:000090:021492

DOI: 10.13043/DYS.100.4

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