Tax policy, social inequality and growth

Jonathan E. Leightner and Zhang Haiqi

Contemporary Social Science, 2016, vol. 11, issue 2-3, 253-269

Abstract: The effects of social inequality usually include income inequality. Income inequality is augmented or reduced by tax policies. This paper finds empirical evidence that shifting the tax burden from the socially disadvantaged to the socially advantaged would cause gross domestic product (GDP) to rise. Specifically, this paper uses Reiterative Truncated Projected Least Squares – a regression technique that produces reduced-form estimates while solving the omitted variables’ problem – to estimate dGDP/d(Property Tax), dGDP/d(Corporate Tax), dGDP/d(Individual Tax) and dGDP/d(Sales Tax) for 23 countries using annual data from 1970 to 2012. GDP is measured in millions of US dollars and each tax is tax revenues as a per cent of GDP. For 13 of the 23 countries examined after 2008, we find that property and corporate taxes are the best taxes (increases GDP the most) to increase and individual income taxes and sales taxes are the worse to raise.

Date: 2016
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DOI: 10.1080/21582041.2015.1114406

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