Breaking down inequality: Can taxes be the great equalizer?

Lucas Menescal

No 2024/0328, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Given the contrasting evidence on the redistributive role of taxation, this study seeks to isolate the redistribution process performed through the tax and transfers system and address the effects of several taxes on the difference between pre- and post-tax and transfers Gini coefficients, commonly referred as the Reynolds-Smolensky Index (RSI), in a panel of 107 advanced and developing economies for the period between 1990 to 2020. Contrary to previous evidence, obtained results showed little evidence that direct taxation had significant redistributive effects, whereas indirect taxation only presented negative impacts on developed economies. Still, robust redistributive effects of social security contributions were observed for both groups, while property taxes seem to be associated with higher redistribution in the long run. Finally, the importance of investment and employment levels is underlined and policy recommendations for higher income redistribution are proposed.

Keywords: Taxation; Income redistribution; Reynolds-Smolensky Index; Panel Data. (search for similar items in EconPapers)
JEL-codes: C23 C26 H23 H55 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-pbe and nep-pub
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