The Impact of Uruguay’s 2007 Tax Reform on Equity and Efficiency

Bruno Martorano ()

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: In 2007, the Uruguayan government implemented a new tax reform which introduced a new progressive labour income tax, a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This paper presents an evaluation of the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for the years 2006 and 2009. Using a Difference-in-Differences technique, the paper shows that the new tax system lowered inequality by 2 Gini points without producing any discernible disincentive effect. These results contrast with the conclusions of supply side-economics and suggest that suitably designed reforms of direct taxation can simultaneously achieve the goals of equity and efficiency.

Keywords: Tax reform; tax incidence; income distribution; efficiency; matching estimators (search for similar items in EconPapers)
JEL-codes: C14 D63 H21 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Impact of Uruguay's 2007 Tax Reform on Equity and Efficiency (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:frz:wpaper:wp2012_06.rdf

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