Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit

Sheraz Rajput, Fiza Qureshi and Tariq Aziz ()

Asian Journal of Applied Economics, 2021, vol. 28, issue 01

Abstract: This study investigates the dynamic relationship between demography and direct taxes on income, profit, and capital gains. The data, for the period 1990–2017, encompass 89 OECD and non-OECD countries. The study employs generalized method of moments (GMM) estimation to identify the relationships. The findings suggest a U-shaped correlation in OECD countries, which supports the argument that a rise in the aging population initially decreases taxes on income, profit, and capital gains. Conversely, any further rise in the aging population after reaching a certain threshold leads to increased taxes on income, profit, and capital gains. Furthermore, across non-OECD countries, the findings suggest an inverted U-shaped relationship implying that the labor income tax rate will fall with a rise in the dependency ratio until the aged population constitutes half of all voters, but the correlation between these variables becomes positive if the number of aged people reaches 50% of voters or more. The findings lead to the suggestion that other potential factors, such as empathy among family members, as opposed to political muscle only may affect voters’ behavior in a median voter model.

Keywords: Public; Economics (search for similar items in EconPapers)
Date: 2021
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Journal Article: Demographic Changes and Direct Tax Dynamics in OECD and non-OECD Markets: A Revisit (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:thkase:334390

DOI: 10.22004/ag.econ.334390

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