Determinants of top personal income tax rates in 19 OECD countries, 1981–2018

Bastiaan van Ganzen

Journal of Public Policy, 2023, vol. 43, issue 3, 401-426

Abstract: This article aims to map the political economy of top personal income tax rate setting. A much-discussed driving factor of top rate setting is the corporate tax rate: governments may prefer to limit the differential between both rates in order to prevent tax-friendly saving of labour incomes inside corporations. Recent studies have highlighted several other driving factors, including budgetary pressure, partisan politics, and societal fairness norms. I compare these and other potential determinants in the long run (1981–2018) by studying tax reforms of 226 cabinets in 19 advanced Organisation for Economic Co-operation and Development (OECD) countries using regression models. I find little evidence for the effects of economic, political, and institutional factors; instead, the main determinant of the top rate is the corporate tax rate. As corporate tax rates are still declining under competitive pressure, the recently set minimum rate of 15% will not stop tax competition from constraining progressive income taxation.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jnlpup:v:43:y:2023:i:3:p:401-426_1

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