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The effects of the tax mix on inequality and growth

Oguzhan Akgun, Boris Cournède () and Jean-Marc Fournier

No 1447, OECD Economics Department Working Papers from OECD Publishing

Abstract: Can reforms that shift the balance among different taxes in the revenue mix lastingly influence the overall prosperity of an economy and the distribution of income across households? The present study takes this question to the data, using the experience of 34 OECD countries over 1980-2014 to assess the effects of changes in the tax structure on the long-term level of average output per capita and the distribution of disposable income across households. Changing the revenue mix while keeping government size constant typically lift long-term output per capita when they involve cuts in the labour tax wedge below or above average incomes, cuts in corporate income taxes or increases in property taxes. The relative-income effects of revenue-neutral reductions in labour tax wedges are broadly in line with intuition: the relative position of those benefitting from them typically improves. In absolute terms, however, nearly all the income distribution benefits from revenue-neutral reductions in labour tax wedges, be they focused on below or average income earners.

Keywords: growth; household disposable income; inequality; tax; taxation (search for similar items in EconPapers)
JEL-codes: H11 H2 H23 H24 H25 H27 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
Date: 2017-12-15
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