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The Impact of Tax Composition on Income Inequality and Economic Growth
Lev Drucker, Ze'ev Krill and Assaf Geva1
August 2017
ABSTRACT
This work examines how the tax composition - income taxes on individuals, corporate tax and
taxes on consumption and property - affects income inequality and economic growth. Using a
panel of 25 developed countries over the last three decades we estimate the relationship
between the tax composition and two variables: the Gini index and per capita GDP growth.
Potential endogeneity is addressed by creating a time-gap between the independent and the
dependent variables. We find that income taxes on individuals and non-recurrent property
taxes are negatively correlated with inequality and economic growth; corporate tax impedes
economic growth and has no clear impact on inequality; taxes on consumption increase both
inequality and growth. Municipal taxes neither support growth nor reduce inequality. We
construct two country specific measures for the extent the tax composition supports (or
discourages) equality and economic growth. These indicators are used to design a feasible
efficiency frontier that represents the tradeoff between economic growth and equality. We
show that some countries (Germany, Sweden and Finland) are close to the frontier, while
others have ample room for improving at least one policy objective through efficiency gains.
Key Words: Taxation Policy, Inequality, Economic Growth, Panel Estimation
Categories JEL: E63, H21, D63
1 We wish to thank our colleagues in the Chief Economist's Department for their helpful comments. We
are also grateful to Lihi Shafran, Ido Hanegbi, Katya Mazirova and Sari Band for their help in the
writing of the research. This work reflects only the views of its authors.
2
Section 1 – Introduction
In recent decades, inequality has grown in most OECD countries - Brys et al. (2016).
Frequently mentioned drivers of this trend are: (1) an increase in the wage gap in favor of the
highly educated as a result of technological changes; (2) changes in employment patterns
which have led to an increase in the share of part-time jobs and low-paying jobs; (3)
demographic changes; (4) a decrease in the contribution of the tax system and of transfer
payments to the reduction of inequality OECD (2011, 2015).
The tax composition affects net inequality in two ways: first, taxes have a different degree of
progressiveness, and therefore the mixture of taxes is responsible for part of the difference
between market inequality (prior to governmental intervention, refer to Appendix A.1) and
net inequality. Second, the tax composition affects economic incentives (e.g., labor market
incentives), and thus indirectly affects net inequality. In addition, the tax composition has
various channels of impact on economic growth. Tax policy affects economic incentives
related both to investment and labor decisions, more specifically, it influences the financial
profitability of investments and it changes the amount of effort workers choose to invest, and
skills they choose to acquire.
This work examines how the tax composition – i.e., the division of tax revenue to income
taxes on individuals, corporate taxes, taxes on consumption and property taxes - affects net
inequality and economic growth. Our analysis is based on a panel of OECD countries in the
years 1970 – 2012. This paper is part of a relatively new and growing literature which deals
with the effect of the tax composition on macro-economic variables (Arnold, 2008, Arnold et
al., 2011; Ormachea and Yoo, 2012) and on the factors of production (Heckman et al. 1998;
Gould and Moav, 2007; Gentry and Hubbard, 2000). This paper contributes to the existing
literature in three main ways: first, the analysis takes into account behavioral changes that
arise in response to tax policy; second, the analysis distinguishes between the impact of a
specific tax and the impact derived from changes in the overall tax burden; finally, it presents
the efficiency frontier of equality and growth tradeoff with respect to the tax composition.
We find that income taxes on individuals and non-periodic property taxes reduce inequality
and growth; corporate taxes were found to have no significant effect on inequality and a
negative effect on growth, and that an increase of the share of consumption taxes increases
both inequality and growth. These results highlight the existing tradeoff between the degree to
which the tax composition supports growth and its ability to increase equality. However, most
countries are far from the efficient equality/growth frontier and thus have ample room for
gains on both the equality and growth aspects via the tax system by improving the efficiency
3
of the tax composition. Moreover, we show that the distance to the efficiency frontier has
increased in the last three decades.
The remainder of this paper is organized as follows: Section 2 presents the main trends in
inequality, growth and tax systems in OECD countries; Section 3 reviews the relevant
literature; Section 4 describes the data used for this study; Section 5 outlines our
methodology; Section 6 presents the main results; Section 7 discusses the policy implications
for tax policy, equality and growth; Section 8 summarizes.
Section 2 – Trends in Inequality, Economic Growth and Tax Composition
2.1 Trends in inequality
In most OECD countries income inequality has increased over the past few decades. This
trend persists despite efforts to reduce inequality by increasing the tax burden. The few
OECD countries in which income inequality has decreased are those who had high levels of
inequality at the initial period of the sample (e.g., Turkey and Mexico).
Chart 1 - The Gini Index of Inequality in 1980 and 2011
(Change between 1980 to 2011 in percentage points)
Market Inequality - Pre-taxes and Transfer Payments.
Por
tuga
l Ir
elan
dB
rita
inG
reec
eS
pain
Isra
elU
SA
Ger
man
yF
ranc
eIt
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Aus
tral
iaH
unga
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wed
en
New
Zea
land D
enm
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Fin
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C
anad
aP
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dL
uxem
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Nor
way
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wit
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and
0.2
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0.4
0.5
0.6
Chi
le
Mex
ico
Hol
land
Tur
key
Est
onia
Aus
tria
Cze
ch R
epub
lic
Slo
vaki
aS
love
nia
Icel
and
Japa
n
Increase in
Inequality Decrease in
Inequality
Partial Data
1980 2011
4
Net Inequality - After Taxes and Transfer Payments
2.2 Trends in economic growth
During the last few decades GDP growth among OECD countries has been characterized by a
10 years business cycles (Chart 2). These business cycles are highly correlated with those of
US2, a fact that emphasizes the interdependence between advanced economies.
The average GDP growth rates (Chart 3) illustrate a beta-convergence where countries with
lower GDP per capita (e.g. Mexico, Chile, Korea and Israel) grow faster than countries with
higher initial GDP per capita. This rationale is based on the law of diminishing return to
capital. According to this notion one should expect countries like Greece and Italy to
demonstrate higher rates of averaged growth than those shown. However, these two belong to
a group of economies which suffered severely from both the global financial crisis and the
Eurozone crisis which uncovered structural problems which has impeded recovery.
2 http://www.nber.org/cycles.html
Isra
elU
SA
Bri
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Sp
ain
Po
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Ch
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Mex
ico
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rkey
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on
iaA
ust
ria
Slo
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iaS
lov
enia
Cze
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epu
bli
cIc
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dJa
pan
1980 2011
5
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1980 1985 1990 1995 2000 2005 2010 2015
OECD Average Growth
Chart 3 – GDP per capita (1980), Average Growth (1980-2015)
0%
1%
2%
3%
4%
5%
6%
7%
0
2000
4000
6000
8000
10000
12000
14000
16000
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Ko
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OEC
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ingd
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lgiu
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Fran
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Net
her
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De
nm
ark
No
rway
Swed
en
Swit
zerl
and
GDP per capita Growth
6
Chart 4 – GDP per capita (1980, 2015)
2.3 Trends in the Tax Burden
Over the last three decades, on average, OECD countries have increased their tax
burden(Chart 5). The tax burden increased significantly during 1980-2000 whereas the years
of 2000-2011 were characterized by a stable tax burden, amounting to approximately 35% of
GDP, on average. When observing the changes in each country separately (Chart 6), one
notices that there were countries in which the tax burden increased substantially (Italy,
Finland, Turkey, Greece) while in others the tax burden decreased (Israel, Hungary, Canada).
In other countries, no substantial changes occurred (Britain, Sweden, USA).
Greece
Italy
Denmark
Germany
France
Switzerland
Belgium
Austria
Japan
FinlandNetherlandsUK
Portugal
Spain
Sweden
Canada
Norway
OECD averageNew Zealand
USA
Mexico
Australia
Israel
Chile
Ireland
Korea
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0 3,000 6,000 9,000 12,000 15,000 18,000
2015
1980
7
Average Percentage Point Range 25 – 75
Net
herl
ands
Hun
gary
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and
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Rep
ubli
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Irel
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Ger
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Icel
and
Por
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Gre
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Spa
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Japa
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Sw
itze
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d
Tur
key
Mex
ico
Den
mar
k
Fin
land
10%
20%
30%
40%
50%Increase in the Tax
Burden
(1980-2011)
Decrease in the Tax
Burden
(1995-2011)
Chart 5 - Tax Burden, 1980 - 2011 (% of GDP, OECD Countries)
Chart 6 - Tax Burden in Selected Years
(% of GDP, Selected Countries*, From the Highest in 2011 to the Lowest)
*Countries in which the tax burden either increased or decreased by more than 3% during the relevant
period.
25%
30%
35%
40%
45%
1980 1990 2000 2010
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The Tax Composition
Chart 7 shows the tax composition in 2013, by country. Income taxes on individuals
constitute the main revenue source in many countries (such as the USA). The second largest
revenue source is consumption taxes. This revenue source is particularly high in countries in
which income taxation of individuals is relatively low (Chile, for example). The shares of
corporate and property taxes in the total revenues are relatively smaller.
Chart 7 - Tax Composition in OECD Countries, 2013
(In Percentages of Total Collection, Sorted According to the Share of Direct Taxes)
0 20 40 60 80 100
Australia
Denmark
USA
Canada
Switzerland
Norway
New Zealand
Sweden
Japan
Austria
Luxembourg
Germany
Ireland
Belgium
OECD
Netherlands
United Kingdom
Portugal
Israel
Finland
Korea
Italy
Hungary
Slovenia
Greece
Chile
France
Poland
Spain
Turkey
Czech Republic
Direct on Individuals Corporations Consumption Property Others
9
8%
11%
14%
17%
20%
1980 1990 2000 2010
Direct Taxes on Individuals
1%
2%
3%
4%
5%
1980 1990 2000 2010
Income Tax on Companies
6%
9%
12%
15%
1980 1990 2000 2010
Tax on Consumption
0%
1%
2%
3%
1980 1990 2000 2010
Taxes on real estate
The relative importance of the various tax categories as a source of revenue for OECD
countries has not changed substantially during the last three decades (Chart 8): income tax on
individuals constitutes the principal source of revenue, 12% - 14% of GDP on average; taxes
on consumption contribute about 10% - 12%; corporation income taxes have a much lower
share of 2.5% - 4% and taxes on real estate contribute less than 2%. During the reviewed
period, the share of corporate income tax and consumption taxes has increased at the expense
of income tax on individuals. The share of real estate taxes has not changed significantly.
Chart 8 - Trends in the Composition of Taxes, 1980 - 2010 (% of GDP, OECD Countries)
Section 3 - Literature review
Tax composition and inequality
In most studies, the effect of specific taxes on inequality is examined by using microdata
simulations based on household surveys (e.g., Immervoll et al., 2005). These simulations
suffer from two main methodologic flaws. First, they only examine the direct effect of
changes in a specific tax on inequality (Appendix A.1, Arrow A) and do not take into account
Average Percentage Point Range 25 – 75
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the indirect effect stemming from behavioral changes (Arrow B) or from political reasons
(Arrow C). Second, these calculations do not take into account that a change in a specific tax
brings about changes in the total tax burden or in the collection of other taxes. For example, if
the VAT rate is raised, it raises the tax burden or alternatively allows for a reduction of other
taxes (while keeping the tax burden constant). In light of these shortcomings we examine the
effect of the tax composition on inequality by using an econometric estimation model, based
on a macro level panel dataset. This approach enables us to estimate the overall effect - both
income and consumption - of changes in the tax composition on inequality. Furthermore, it
allows us to analyze the impact of corporate and property taxes whose effect on inequality3 is
difficult to estimate using static simulations which rely on household level data.
A few studies use a macro-level econometric approach to estimate the effect of the tax
composition on inequality. Duncan and Sabirianova (2012) examined the effect of
progressivity on different measures of inequality and found that progressivity influences
observed inequality more than it affects actual inequality4. They deal with the issue of
endogeneity, originated from both the omission of relevant variables and simultaneity, by
utilizing a 2SLS estimation. Changes in the tax regimes of neighboring countries are used as
an instrumental variable. While this approach does offer some measure of treatment to the
endogeneity issue, it fails to deal with regionally or globally correlated business cycles.
Furthermore, the authors do not control for the aggregate debt burden, and thus their results
do not reflect a full equilibrium. As noted before, a change in the tax system could lead to a
change in public expenditure, which in turn affects inequality. Liu and Martinez‐Vazquez
(2015) employ a similar methodology to examine the impact of tax composition on inequality
and growth. With respect to income taxes, their results reveal some tradeoff in the way in
which these taxes affect inequality and growth. No clear tradeoff was found regarding the
influence of excise taxes.
According to the literature, there are a few common variables which affect inequality. In our
estimation we include variables suggested by Williamson and Higgins (2002), which
generally relate to the following three factors:
1. Economic development: According to Kuznets (1955), the effect of GDP per capita
on inequality is not linear. The structural and technological process that accompanies
economic development tends to increase inequality at the early stages of development
3 The Gini Index for inequality, which we have used in this research, is based on incomes and does not relate to the
wealth distribution, due to data constraints. The effect of property taxes, and corporate taxes reflects the correlation
with the income Gini Index only and is not indicative of these taxes effect on wealth inequality. 4 The authors use consumption based Gini as a proxy for actual inequality.
11
(due to increasing demand for capital and for skilled workers) and to lower inequality
at a later stage, as the rate of growth slows down.
2. Demographics: A particularly large cohort (e.g. the "baby boom" generation in the
USA) decreases average wages due to the influx of workers. Accordingly, when this
cohort is at the peak of its earnings inequality is reduced; and when it reaches
retirement, inequality is increased. The demographic structure also influences
inequality because a high proportion of children or the elderly with lower income
potential increases inequality.
3. Openness to foreign trade: Williamson and Higgins (2002) suggest that openness to
foreign trade increases inequality in developed countries and reduces it in developing
countries. They find a negative connection between openness and inequality in
general. However, no empiric support for the claim regarding the differences between
developed countries to developing ones was found.
Tax composition and growth
Previous literature has focused mainly on how the tax burden affects factors of production
and technology level, whereas recently more attention has been given to the effect of the tax
composition itself rather than the overall burden.
Hall and Jorgenson (1967) find that reducing taxation on physical capital increases the
incentive for short term investments. Heckman et al., (1998) and Moav and Gould (2007)
examine how human capital decisions are affected by taxes and the phenomenon of "brain
drain", respectively. They find that a progressive tax system with respect to income taxes
discourages accumulation of human capital, and that highly educated people are more likely
to migrate than less educated people, with income playing a significant role in the decision
making process. The impact of taxes on the labor supply in the short term is not straight-
forward. However, evidence suggests that a higher tax burden reduces labor supply regardless
of the elasticity level. For further discussion see Brender and Gallo (2009), Brender and
Strawczynski (2006).
Taxation also affects the number of active entrepreneurs and the channels firms use to finance
their activities. Thus, taxation affects technological advancement. Gentry and Hubbard (2000)
claim that progressivity creates asymmetry according to which in case of successes, the
entrepreneurs pay relatively higher taxes rather than the taxes they save in case of failure.
12
Devereux et al., (2008) find that in order to attract multinational companies, OECD countries
compete with each other on the level of corporate and capital taxes. Multinational firms were
also found to contribute to higher levels of investment and productivity (Balsvik, 2011).
Kneller et al. (1999) studied the effect of the tax composition on growth in 22 OECD
countries for the years 1970-1995. They divide taxes into two categories – distorting and non-
distorting taxes and find the first group to have a negative effect on economic growth while
the latter has no significant link with economic growth. Arnold (2008) and Arnold et al.
(2011) estimate the impact of tax composition on economic growth in 21 OECD countries for
the years 1970-2004. Arnold et al. (2011) conclude that corporate and individuals' income
taxes reduce GDP growth whereas consumption and property taxes support it. Ormaechea and
Yoo (2012) replicate Arnold's papers while expanding the sample and find similar results with
respect to the negative effect of the tax imposed on individuals. Switching to consumption
and property taxes in expense of income tax in Ireland, was found to be beneficial for both
GDP growth and the employment rate in a study conduct by O'Connor (2013). Canavire-
Bacarreza et al. (2013) consider a sample of Latin American countries. Unlike most research,
their paper indicates no negative impact of personal income taxes and corporate income taxes
on growth for nearly all countries in the sample. With respect to general taxes on goods and
services they come to a similar conclusion as others, suggesting that these taxes promote
economic growth.
Section 4 – Data
The analysis is based on annual data for 1975-2011 focusing on 25 OECD countries for which
available data exists (see Appendix 2 for the country list). In order to maintain uniformity, we
omitted data regarding Germany prior to 1991, Portugal prior to 1994 and Israel prior to 1995.
Data regarding the collection of taxes, public debt, population and employment, is taken from
the OECD database; GDP data and its components are taken from the Penn World Tables;
real exchange rate data is issued by The World Bank; inequality data is taken from the
Standardized World Income Inequality Database (5.0 SWIII, Solt, 2014). To the best of our
knowledge, this database offers the best harmonized inequality data by unifying the data from
various surveys into one dataset taking into account the varying quality of the data. The
inequality index based upon the income ratio of the top ten percent and the bottom ten percent
(the 90/10 Incomes Ratio Index) is calculated based on OECD data.
13
4.1 Definition of Tax Collection Aggregates
1. Individual income taxes: personal income tax, taxation of profits and capital gains of
individuals, social security contributions and other taxes on employment for which employers
are liable.5
- Taxes on employment of individuals: taxes on income from employment and
employees' national insurance payments.
2. Corporate taxation: taxation of revenues, profits and capital gains of companies.
3. Taxes on consumption: taxes on goods and services and other taxes.
- VAT, GST (Sales Tax) and other general taxes on goods and services.
- Excise taxes: taxation of selected items such as cars, fuels and tobacco.
4. Capital Taxation: recurrent taxation of real estate, recurrent taxation of other
property, inheritance and gifts tax, taxation of capital movements and other taxes on assets.
- Recurrent property taxation: recurrent taxation of real estate, and other recurrent
taxes.
- Non- recurrent property taxation: inheritance tax, estate and gifts tax, and other non-
recurrent taxes.
4.2 Descriptive Statistics
Descriptive statistics for the main variables are shown in Table 1. According to our
methodology, the variables refer to a five year period (a detailed explanation is given in
Section 5). Keeping that in mind, the following statistics relate to the five year period
beginning in the years 1970, 1975, 1980, 1985, 1990, 1995, 2000 and 20056. Table 8 in the
appendix outlines data availability for specific countries.
5 All definitions are based on OECD classification, which can be viewed in detail at:
http://www.oecd.org/tax/tax-policy/tax-database.htm 6 Unlike the rest of the variables, Average growth of GDP per capita relates to the entire sample.
14
Table 1 – Descriptive Statistics
N Average Min Max SD
Macro variables
Gini Index (5 years average)7 179 30.4 19.4 52.1 7.0
Average GDP per capita growth 189 2.4 -1.5 11.4 1.9
GDP per capita (thousand US Dollar) 189 22.3 2.6 58.9 9.2
Tax burden (as a percentage of GDP) 178 33.1 14.8 51.4 8.9
Unemployment rate 166 5.8 0.0 18.7 3.4
Inflation 187 11.9 -0.7 374.7 36.5
Abs. inflation (>4%) 102 19.3 4.1 374.4 47.4
Openness to foreign trade (as a percentage of
GDP) 185 62.7 10.7 181.7 29.9
Share of the population aged under 15 188 22.8 13.8 46.8 6.4
Share of the population aged 40-59 189 23.1 11.6 30.1 3.7
Tax composition (as a percentage of tax collection)
The share of income taxes on individuals 171 37.5 8.6 61.6 10.3
The share of corporate taxes 173 8.9 1.6 27.0 4.8
The share of taxes on consumption 178 32.7 14.0 65.2 10.5
Of which : VAT and GST 178 16.4 0.0 41.8 6.5
Of which : Excise Taxes 178 9.2 2.2 35.7 4.4
The share of taxes on property 178 6.2 0.5 15.0 3.5
Section 5- Specification
This Section presents the methodology for measuring the effect of the tax composition on net
inequality and economic growth. We estimate the impact of the total tax burden and of
different types of taxes on inequality and growth indices. For the estimation of the effect on
inequality, a set of covariates is added based on Williamson and Higgins (2002), who
provided a review of factors that influenced inequality in 80 countries during 1960-1990. As
previously mentioned, the authors found that inequality is influenced by demography,
7 The Gini index is calculated on disposable income, based on all financial revenues excluding asset
revaluation. We present the index ranging from 0 to 100. Thus, an increase of 0.15 in the Gini Index
refers to an increase of 0.15 hundreds of a point, or an increase of 0.0015 points in the more common
method of presenting the Gini Index.
15
economic development (depicted as the level of GDP per capita) and by openness to foreign
trade. For the economic growth estimation we add a set of covariates based on Barro (1991,
1996) who found that the per capita growth rate is affected by the initial level of GDP per
capita, inflation, institutions quality, government consumption and by openness to foreign
trade.
The main econometric challenge in estimating the above relations is due to potential
endogeneity and, more specifically, reverse causality. Taxes affect the level of inequality and
the growth rate of the economy but at the same time it is reasonable to assume the opposite
("the Richard and Meltzer Effect"). Both the level of inequality and the pace of economic
growth can influence the tax composition through the tax base and the tax rate. It is common
to address this issue by creating a time-gap between the independent and the dependent
variables. We estimate how an independent variable in a base year (1975, 1980, 1985, 1990,
1995, 2000, and 2005) explains the averaged dependent variable (inequality or economic
growth) during the ensuing 5 year. This methodology was outlined inter alia, by Devarajan
(1996) and Ostry et al. (2014). In order to eliminate further endogeneity that might arise
despite the time gaps, a 2SLS specification is employed (see Section 6 for more details). The
estimated regression equations are as follows:
𝐺𝐼𝑁𝐼𝑖,𝑡+1→𝑡+5 = 𝛽1′ 𝑋𝑖,𝑡 + 𝛽2
′ 𝑇𝑆𝑖,𝑡 + 𝛽3′ 𝑍𝑖 + 𝛽4
′ 𝑊𝑡 + 𝜀𝑖,𝑡
∆lny𝑖,𝑡+1→𝑡+5 = 𝛼1′ 𝑋𝑖,𝑡 + 𝛼2
′ 𝑇𝑆𝑖,𝑡 + 𝛼3′ 𝑍𝑖 + 𝛼4
′ 𝑊𝑡 + 𝑢𝑖,𝑡
Where 𝐺𝐼𝑁𝐼𝑖,𝑡+1→𝑡+5 represents the average net inequality during the subsequent 5 years (t
indicates the base year); ∆lny𝑖,𝑡+1→𝑡+5 symbolizes the average per capita GDP growth during
the 5 following years; X is a design matrix (tax burden, per capita GDP, openness to foreign
trade, inflation, demography and education) that includes appropriate adjustments for each
estimation; TS expresses the share of - income taxation on the earnings of individuals,
corporate tax, taxes on consumption, VAT, purchase taxes, recurrent property taxation, non-
recurrent property taxation – in total tax revenues; Z is a dummy variable for geographic
regions8 and W is a dummy variable for different periods.
Some limitations arise from the definitions of the variables. While the net GINI index reflects
household income inequality (taking into account taxes and transfer payments) it contains
only partial information regarding capital income and does not incorporate consumption and
property. As a result one should bear in mind that the estimated impact of corporate,
8 The results of a robustness test with Fixed Effects regression are given in the Appendix.
16
consumption and property taxes on inequality might not tell the whole story. An
internationally comparable "consumption GINI index" will allow an extension of the analysis
conducted in this paper.
Section 6 – Estimation Results
6.1 Tax composition and inequality
As mentioned above, the effect of the tax composition on inequality is estimated using
specifications which include factors that were reported to affect inequality in the literature;
the list contains the following variables: GDP per capita, the tax burden, openness to trade
and demographic structure. The estimation results regarding the effect of these variables on
inequality are presented in Table 2 (see Appendix A.2).
We find that higher GDP per capita in the base year reduces Gini values in the ensuing years.
This outcome fits the classic Kuznets model (1955), which predicts a negative relationship
between the level of GDP per capita and inequality in developed economies. The tax burden
was found to have a negative effect on inequality as well. This result is explained by two
main factors: First, most tax systems are progressive with a large share of the revenue derived
from the middle-upper class segments of the population. Second, countries with a higher tax
burden tend to provide larger transfer payments in absolute terms and also as a percentage of
GDP (see Appendix A.3). Openness to foreign trade contributes to a reduction in inequality,
contrary to the theoretical model of Williamson and Higgins (2002), although as mentioned
above, they found on empiric collaboration to this theoretic result. Finally, we find that the
demographic composition has a significant impact on the income gaps, as a greater share of
the population in peak employment and at earnings capacity ages (40-59), reduces the level of
inequality.
Specification (4) in Table 2 was selected as the baseline for the estimation of the impact of tax
composition. Controlling for the total tax burden enables us to examine the effect of
composition changes in the tax system on inequality9. Later in this Section, we report the
cases under which the main specification coefficients differ significantly from those derived
from the alternative estimations. In addition, we have found no evidence of a non-linear
relationship between tax composition and the Gini index.
Table 3 reports the results of estimating the effect of income taxes on inequality. We find that
an increase of the share of income tax on individuals (keeping the tax burden constant)
9 In addition to the tax variables mentioned above each model includes an additional revenues variable
capturing revenues that do not fall under any examined category.
17
reduces inequality. According to specification (1) an increase of a percentage point in the
share of income tax on individuals (as a share of total revenues) reduces the average Gini by a
cumulative 0.15 points10 during the next 5 years. Specification (2) differentiates between the
effect of income taxes on labor income and the effect of taxation on capital gains of
individuals. The findings indicate that while the taxes on labor income reduce inequality,
taxation of individuals' capital gains positively affects the Gini index. The latter result can
reflect the mismeasurement in calculation of the Gini index, which frequently lacks reliable
information on capital held by individuals.
Specifications (3) - (5) evaluate the effect of corporate taxes on inequality. Specification (3)
reports no impact of corporate taxes on inequality. However, the lack of significance might be
a consequence of a time lag – sometimes there is a substantial lag until the proceeds have
been received (due to appeals or litigation). To deal with this potential endogeneity, we add
specifications (4) and (5) which include an instrumental variable.11 The results obtained are
similar to those obtained by Model (3).
Table 3 - The effect of income taxes on inequality
10 The Gini index is measured on a 0-100 scale. 11 We use an instrumental variable - corporate tax share lagged by 5 years (for example the corporate
tax share in the year 2000 constitutes an instrumental variable for the corporate tax share in 2005). The
selected instrumental variable meets the two required criteria for the exclusion restriction: it is closely
linked with the current corporate tax share and it has no direct effect on inequality.
Dependent Variable: Average Gini index in the five years following the base year
(5)
2SLS
(4)
2SLS
(3)
OLS
(2)
OLS
(1)
OLS
1.750−
(2.031)
−4.025**
(1.641)
−5.336***
(1.241)
−5.491***
(1.018)
−4.639***
(1.031)
Logarithm of per capita
GDP
−0.280***
(0.040)
−0.298***
(0.040)
−0.337***
(0.038)
−0.229***
(0.039)
−0.303***
(0.037) Tax Burden
−2.203**
(0.903)
−2.563***
(0.892)
−0.2832***
(0.913)
−2.752***
(0.827)
−2.733***
(0.859)
Openness to foreign trade
(% of GDP)
0.206−
(0.183)
−0.513***
(0.154)
−0.519***
(0.139)
−0.267**
(0.135)
−0.343**
(0.137)
Share of the population
aged 40-59
−0.222***
(0.078)
−0.195***
(0.034)
−0.146***
(0.034)
Share of income taxes on
individuals
1.237***
(0.302)
- Share of individual's
capital gains taxation
0.261−
(0.181)
0.027
(0.111)
0.051
(0.067) Share of corporate taxes
18
Standard deviations in parentheses. All specifications include period effects, dummies for geographical regions
and the share of revenue not associated with any of the tax categories. *p<0.10, **p<0.05, ***p<0.01.
The effect of consumption and property taxes on inequality is shown in Table 4. Model (1)
shows that taxes on consumption tend to increase inequality. According to Model (2) both
general consumption taxes (such as VAT and GST) and excise taxes contribute to an increase
in inequality. In an alternative estimation in which the dependent variable is the 90/10 ratio,
the only significant results are with regard to the excise taxes. A possible explanation would
be that the Gini index is much more influenced by the middle of the distribution, and the
90/10 ration is affected by the edges of the distribution. Consumption is much less affected by
the tax policy on the edges of the distribution because demand is very robust (at the bottom)
or because budget constraints are loose (at the top).
The results indicate a substantial difference between non-recurrent property taxes (taxation of
real estate transactions, inheritance tax) and recurrent property taxes (municipal taxes) in
terms of the impact on inequality. Model (4) shows that non-recurrent property taxes reduce
income inequality. However, recurrent property taxes were found to positively affect the Gini
index. Therefore, the positive effect of the overall property tax observed in column 4 is a
result of a larger share of the recurrent property taxes (mostly municipal).
Table 4 - The effect of consumption taxes on inequality
Dependent Variable: Average Gini index in the five years following the base year
(4) (3) (2) (1)
−4.152***
(1.011)
−4.439***
(1.070)
−3.514***
(1.163)
−3.937***
(1.121)
Logarithm of per capita
GDP
−0.310***
(0.036)
−0.285***
(0.040)
−0.325***
(0.0395)
−0.334***
(0.0373) Tax Burden
0.578−
(0.928)
−2.266**
(0.900)
−3.006***
(0.893)
−2.879***
(0.890)
Openness to foreign trade
(as a % of GDP)
−0.347***
(0.131)
−0.531***
(0.133)
−0.405***
(0.141)
−0.437***
(0.139)
Share of the population
aged 40-59
0.109***
(0.039) Share of consumption taxes
0.109**
(0.053)
– VAT and GST
121 121 163 156 163 Observations
0.779 0.776 0.813 0.756 0.834 Adjusted R2
19
0.178**
(0.075)
– Excise taxes
0.259***
(0.083)
Property tax
0.604***
(0.111)
- Recurrent property
taxes
−1.356***
(0.504)
- Other property
taxes
163 163 163 163 Observations
0.844 0.824 0.822 0.822 Adjusted R2
Standard deviations in parentheses. All specifications include period effects, dummies for geographical regions
and the share of revenue not associated with any of the tax categories. *p<0.10, **p<0.05, ***p<0.01.
6.2 Tax composition and economic growth
In this section, we estimate the impact of the tax composition on growth. The estimation
methodology is similar to the one presented in the previous section. We start by estimating
the impact of various macroeconomic variables on economic growth. Appendix A.4 outlines
the results: Lagged growth rate, unemployment rate (which is used as a proxy for position
within business cycle), high inflation, the share of population under the age of 15 and
openness to foreign trade are positively correlated with current growth. Lower inflation was
found to be negatively correlated with economic growth.
Based on Table 6 we find that increasing income taxes on individuals or corporate taxes have
a negative impact on growth. For example, according to model (1), increasing the share of
income taxes on individuals by one percentage point will reduce the average growth per year
in the five years following base year by 0.078%, with cumulative negative effect on GDP per
capita of 0.39%. Therefore, the elasticity of growth in relation to the income tax burden for
OECD countries in 2013 is estimated at -1.1512. The impact of income taxes on individuals
remains negative when controlling for the corporate tax share (Table 6, model 5).
Table 6. The effect of income taxes on GDP growth
Dependent Variable: Average rate of per capita growth in the five years following the base
year
OLS
(1)
OLS
(2)
2SLS
(3)
2SLS
(4)
OLS
(5)
Lagged growth rate of
per capita GDP 0.081 0.230*** 0.231*** 0.134* 0.084
(0.073) (0.074) (0.074) (0.071) (0.073)
12 In a similar way, one can quantify the impact of the overall tax burden on growth. The average
impact of the tax burden on growth (averaged on all models) is -0.061. The negative effect of
increasing the tax burden by one GDP percentage point is 0.303% of GDP (cumulatively over 5 years).
20
Unemployment rate 0.087** 0.132*** 0.150*** 0.095*** 0.077**
(0.038) (0.041) (0.029) (0.031) (0.039)
Inflation 0.208** 0.248** 0.145 0.110 0.192*
(0.099) (0.108) (0.095) (0.089) (0.099)
Abs. inflation (>4%) -0.206** -0.264*** -0.229*** -0.185** -0.199**
(0.086) (0.093) (0.081) (0.077) (0.086)
Share of the population
aged under 15 -0.017 0.034 0.073* 0.029 -0.019
(0.042) (0.044) (0.037) (0.036) (0.041)
Openness to foreign
trade (% of GDP) 1.939*** 1.902*** 1.211*** 1.224*** 1.867***
(0.407) (0.450) (0.366) (0.343) (0.408)
Tax burden -0.053*** -0.079*** -0.067*** -0.046*** -0.058***
(0.017) (0.018) (0.018) (0.017) (0.017)
Share of income taxes
on individuals. -0.078***
-0.062*** -0.083***
(0.015)
(0.014) (0.016)
Corporate tax share
-0.002 -0.114*** -0.122*** -0.038
(0.029) (0.040) (0.038) (0.027)
Observations 142 142 139 139 142
Adjusted R-squared 0.556 0.465 0.449 0.511 0.560
Standard deviations in parentheses. All specifications include period effects, dummies for geographical regions
and the share of revenue not associated with any of the tax categories. *p<0.10, **p<0.05, ***p<0.01. The
instrumental variable in the model (5) is corporate tax share lagged by 5 years.
Models (2) and (5) in table 6 measure the effect of corporate taxation on growth. As
previously mentioned, corporate tax revenues are sometimes received with a significant lag.
In addition, there might be a reverse causality between taxes and growth. When policymakers
observe a slowdown in growth they might reduce corporate taxation in order to support
economic activity. The endogeneity arising can distort the results. We use an instrumental
variable approach to solve this problem13. Model (2) does not identify a significant correlation
between the corporate tax share and GDP growth. However, Models (3) and (4), which are
estimated using 2SLS (where corporate tax share lagged by five years serves as an
instrumental variable for current corporate tax share), reveal a significant and negative effect
of corporate taxation on GDP growth. We estimated Model (2) using the exact same sample
as the one used in Models (3) and (4) to assure the difference in the results does not originate
in the differences among the two samples. These results are similar to those reported by
Arnold et al. (2008, 2011), and partly similar to those of Ormaechea et al. (2012) which found
no negative correlation between corporate taxation and economic growth.
13 We use an instrumental variable - corporate tax share lagged by 5 years (for example the corporate
tax share in the year 2000 constitutes an instrumental variable for the corporate tax share in 2005). The
selected instrumental variable meets the two required criteria: it is closely linked with the current
corporate tax share and it has no direct effect on economic growth.
21
Table 7 presents the effect of consumption and property taxes on growth. Model (1) shows
that on average, increasing the share of consumption taxes has a positive effect on the GDP
growth rate. The results reported in Model (2) show that both the general consumption taxes
(such as VAT and GST) and the excise taxes have a positive effect on GDP growth. The
positive effect of excise taxes (which include taxes designed to capture negative externalities)
is significantly larger.
We find that property taxes have a negative effect on growth (Models (3) and (4)). In
particular, we observe that the negative effect of non-recurrent property taxes is relatively
higher compared with the negative effect of recurrent property taxes (mostly municipal). The
specifications in Table 7 were re-estimated using 2SLS14, to address the potential endogeneity
between the tax composition and GDP growth. The results were similar to those reported in
Table 7.
Some of the results presented in Table 7 are different from those reported by Arnold et al.
(2008, 2011) and Ormaechea et al. (2012). In particular, our finding regarding the negative
effect of property taxation on growth differs from the results of Arnold (2008, 2011) but is
similar to Ormaechea et al (2012). The negative impact of property taxes on growth was also
found in other studies (for instance Kneller, 1999). Regarding consumption taxes, our
findings are compatible with the findings of Arnold (2008, 2011) and other studies; while
Ormaechea et al. (2012) reports that the effect of consumption taxes on growth is not
statistically significant.15
Table 7. The effect of consumption and property taxes on GDP growth
Dependent Variable: Average rate of growth in the five years following the base year
(1) (2) (3) (4)
Lagged growth rate of
per capita GDP 0.096 0.135* 0.113 0.069
(0.070) (0.073) (0.075) (0.075)
Unemployment rate 0.085** 0.101** 0.159*** 0.157***
(0.037) (0.039) (0.038) (0.037)
Inflation 0.173* 0.186* 0.251** 0.236**
(0.098) (0.103) (0.101) (0.098)
Abs. inflation (>4%) -0.189** -0.211** -0.238*** -0.218**
(0.085) (0.089) (0.087) (0.085)
Share of the population
aged under 15 -0.022 0.043 0.037 0.039
14 The selected IV variable is the lagged share of relevant tax. 15 In Ormaechea et al., (2012) some consumption taxes were found to have a positive impact on growth
rate, but as stated, the aggregate effect of all consumption taxes was not significant.
22
(0.041) (0.045) (0.042) (0.040)
Openness to foreign
trade (% of GDP) 1.634*** 1.469*** 1.868*** 1.790***
(0.403) (0.435) (0.428) (0.446)
Tax burden -0.088*** -0.077*** -0.069*** -0.064***
(0.016) (0.019) (0.019) (0.018)
Consumption share tax. 0.081***
(0.015)
VAT and GST
0.044*
(0.024)
Excise tax
0.150***
(0.044)
Property tax
-0.119**
(0.047)
Recurring
property tax -0.119**
(0.059)
Other property
taxes -0.637**
(0.307)
Observations 142 142 142 142
Adjusted R-squared 0.570 0.525 0.528 0.555 Standard deviations in parentheses. All specifications include period effects, dummies for geographical regions
and the share of revenue not associated with any of the tax categories. *p<0.10, **p<0.05, ***p<0.01.
Section 7 – Discussion and policy implications
The complex relationships existing between the tax composition, equality and growth
reported in the previous section have far-reaching policy implications for tax system design.
In order to support policy formulation we construct two measures for aggregate impact of the
tax composition on equality and growth – Equality Effect of the Tax Composition (EETC)
and Growth Effect of the Tax Composition (GETC). We calculate these measures based on
the estimation results shown in the previous section. The index defined in equation (1)
examines the extent to which the tax composition supports a reduction in inequality16 while
Index (2) measures the impact of the tax composition on economic growth. These indices
reflect the effect of the tax composition, after controlling for the impact of the total tax
burden.
(1) 𝐸𝑞𝑢𝑎𝑙𝑖𝑡𝑦 𝐸𝑓𝑓𝑒𝑐𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑇𝑎𝑥 𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑖𝑜𝑛 (𝐸𝐸𝑇𝐶)𝑖,𝑡 = (−1) ⋅ ∑ 𝑤𝑗,𝑖,𝑡 ⋅ 𝛽𝑗
𝑛
𝑗=1
16 We use (-1) multiplication in order to measure equality. In other words, higher values of the EETC
index suggest that tax composition contributes more to equality.
23
(2) 𝐺𝑟𝑜𝑤𝑡ℎ 𝐸𝑓𝑓𝑒𝑐𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑇𝑎𝑥 𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑖𝑜𝑛 (𝐺𝐸𝑇𝐶)𝑖,𝑡 = ∑ 𝑤𝑗,𝑖,𝑡 ⋅ 𝛼𝑗
𝑛
𝑗=1
𝒘𝒋,𝒊,𝒕 - represents the share of a specific tax j in year t for country i;
𝜷𝒋 - represents the estimated impact of tax j on the Gini Index (hence the index values are
in Gini points)
𝜶𝒋 - represents the estimated impact of tax j on per capita GDP growth (hence the index
value is in percent of GDP).
Appendices A.6, A.7 provide the calculated values of the EETC and GETC indices for the
countries in the sample17. Chart 13 displays the dispersion of EETC and GETC across
countries. OECD countries with larger shares of income taxes (e.g., Belgium, Austria,
Denmark and Germany) have higher values of EETC which indicate that their tax
compositions support income equality. The large share of corporate tax in total tax revenues
and the small shares of consumption taxes for countries such as Australia, Canada and the
U.S. hampers economic growth.
The OECD average divides chart 13 into four quarters. Countries in the upper right quarter
have a tax composition that contributes to both growth and equality more than the OECD
average. The immediate conclusion from this chart is that most countries can make Pareto
efficient changes to their tax composition in which they will improves at least one of the two
policy variables without having to sacrifice the other.
24
Chart 13 – EETC and GETC Values, 2013-2014 average
*Japan and Spain are omitted for clarity of presentation purposes (overlapping). Data for Mexico is unavailable for
the relevant period.
Furthermore, the EETC and GETC indices enable us to chart a feasible efficiency frontier for
the tax composition. The first step in the construction of the efficiency frontier is to rank the
relevant taxes by β and α (i.e. the effect of each tax on equality and economic growth). Next,
the marginal rate of substitution between growth and equality (MRS) is calculated for each
tax category. The MRS measures how much equality is gained for each percent of GDP
growth that is lost for changes in a share of given tax type18. We continue with establishing
the largest positive contribution to economic growth (the x-axes). This is done by
constructing a tax composition using ranked order of growth friendly taxes. To ensure a
feasible frontier we restrict each tax share to the maximum tax share observed in the sample
(e.g. the maximum share of individual income tax for 1980-1985 is 22.7% and it relates to
Denmark in 1985).
This maximum feasible value for GETC serves as the starting point for the drafting of the
efficiency frontier. It is important to mention that the corresponding EETC value could be
negative, as is the case in the Appendix A.8. The rest of the frontier was drawn by a step-by-
18 In some cases the ratio is zero or positive. For example municipal taxes have negative impact both on
growth and equality.
AustraliaAustralia
AustriaAustriaBelgiumBelgium
CanadaCanada
ChileChile
DenmarkDenmark
FinlandFinland
FranceFrance
GermanyGermany
GreeceGreece
IrelandIreland
IsraelIsrael
ItalyItalyKoreaKorea
NetherlandsNetherlands
New ZealandNew Zealand
NorwayNorway
PortugalPortugal
SwedenSwedenSwitzerlandSwitzerland
United KingdomUnited Kingdom
United StatesUnited States
Growth-, Equality-
Growth-, Equality+
Growth+, Equality-
Growth+, Equality+
OECD
-5-3
-11
35
79
Equ
alit
y E
ffe
ct T
ax C
om
po
sitio
n (
EE
TC
)
-27 -22 -17 -12 -7 -2Growth Effect Tax Composition (GETC)
-14.8
1.8
25
step change in the tax composition according to the MRSs of each tax. Chart 14 presents the
efficiency frontier for the years 1980-1985 combined with the distribution of countries in the
relevant years. Some of the countries, such as Sweden, were close to the frontier, while others
(Japan, Canada and UK) had ample space to improve both the growth friendliness and the
redistributive effect of the tax system.
Chart 14. Tax composition policy efficient frontier 1980-1985
AustraliaAustria
Belgium
Canada
Switzerland
Spain Finland
France
Greece
United Kingdom
Ireland
Italy
Japan
Korea
Norway
Sweden
United States
-50
510
15
20
EE
TC
(D
iffe
ren
ces in
te
rms o
f G
INI, p
ct. p
oin
ts)
-40 -20 0 20GETC (Differences in terms of GDP, pct.)
26
Chart 15. Tax Composition Policy Efficient Frontier 2013-2014
Changes in the tax shares along the years have caused some alteration in the frontier itself and
in the position of the countries, as shown in charts 14 and 15. Due to the growing share of
inefficient taxes (corporate and recurrent property taxes) the efficiency frontier is pushed
inside causing the maximum feasible EETC and GETC in 2013-14 to be lower than those in
1980-85. Moreover, the average distance to the frontier increased relative to the 1980s. A
partial explanation for this movement stems from the political role which tax systems play in
recent years. Since in many cases it is easier to change the tax system than the expenditure
outlay and the cost of these changes is hard to measure, and since these changes are often
outside of the budget framework, taxes have become a popular policy tools.
Chart 16 presents the evolution of the impact of the tax composition for the OECD countries.
On average, the tax systems across OECD countries put more emphasis on reducing
inequality during the 70's and the 80's. During the 90's and the 00's, there was a large shift
towards a more growth friendly tax composition, followed by a partial reversal after the 2007-
2008 crisis.
Australia
AustriaBelgium
Canada
Switzerland
Chile
GermanyDenmark
Finland
France
GreeceUnited Kingdom
Ireland
Israel
Norway
New Zealand
Portugal
United States
-50
510
15
20
EE
TC
(D
iffe
ren
ces in
te
rms o
f G
INI, p
ct. p
oin
ts)
-40 -20 0 20GETC (Differences in terms of GDP, pct.)
27
Chart 16. Trends in tax composition across OECD countries 1970-2014
Our results suggest that there is ample room for improving both policy objectives through
efficiency gains. Relatively small changes in the shares of corporate and excise taxes could
have a large and positive impact on growth with no significant adverse effect on equality. The
best recipe for improved equality is to increase taxation on individuals while reducing the
share of inefficient taxes (e.g. recurrent property taxes).The following illustration shows how
changes in the tax composition could benefit both equality and growth.
Table 8: Current and proposed OECD tax composition (% GDP)
1970-1974
1975-1979
1980-1982
1983-1990
1991-2001
2002-20080.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
-32 -30 -28 -26 -24 -22 -20 -18
EETC
GETC
2009-2014
Individuals
income
Corporate VAT
and GST
Excise Recurrent
property
Other
property
GETC EETC
OECD
Average
12.9% 3.2% 6.6% 2.3% 1.5% 0.2% -33.09 2.45
Proposed
composition
14.1% 1.6% 6.6% 3.4% 0.8% 0.2% -19.21 4.23
∆= +1.78 ∆= +13.88
28
Section 8 – Summary
This work examines how the tax composition - in terms of a division into income taxes on
individuals, corporate tax and taxes on consumption and property - affects income inequality
and economic growth. Using a panel of 25 OECD countries over the last three decades, we
estimate the relationship between the tax composition and two variables: the Gini index and
GDP growth per capita. Potential endogeneity is addressed by creating a time-gap between
the independent and the dependent variables. We find that income taxes on individuals and
non-recurrent property taxes are negatively correlated with inequality and economic growth;
corporate taxes impede economic growth and have no clear impact on inequality; taxes on
consumption contribute to both inequality and growth. We also find that municipal taxes
neither support growth nor reduce inequality.
These results allow us to construct two country specific measures for the extent the tax
composition supports (or discourages) equality and economic growth. These indicators are
used to design a feasible efficiency frontier that represents the all Pareto efficient tradeoffs
between economic growth and equality. We show that some countries (Germany, Sweden and
Finland) are close to the frontier, while others have ample room for improving at least one
policy objective through efficiency gains. For most OECD countries, proposed changes in the
tax composition can reduce income inequality and enhance economic growth. This is an
important finding since previous papers on the effect of the tax composition reported tradeoffs
between GDP growth and equality with regards to tax composition. Furthermore, our paper
contributes to the existing literature by considering behavioral changes emerging from tax
policy and providing framework for joint analysis of the impact on inequality and growth. We
believe it has far-reaching implications on optimal tax policy design.
29
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C (Political Influence) Net Inequality
Tax Composition
Direct Effect
B1
A
B2
Indirect Effect
Market Inequality
Appendix A.1 - The Direct and Indirect Effect of the Tax composition on Net Inequality
Appendix A.2 – Factors affecting inequality (excluding tax composition)
Standard deviations in parentheses. All specifications include period effects and dummies for geographical areas. *p<0.10, **p<0.05, ***p<0.01.
Dependent Variable: Average Gini index in the five years following the base year
(4) (3) (2) (1)
−4.546***
(1.094)
−5.278***
(1.123)
−5.138***
(1.127)
−3.468***
(1.399)
Logarithm of per capita
GDP
−0.353***
(0.037)
−0.377***
(0.038)
−0.379***
(0.0381) Tax Burden
−2.313***
(0.877)
−1.511***
(0.888)
Openness to foreign trade
(% of GDP)
−0.525***
(0.138)
Share of the population
aged 40-59
170 170 170 179 Observations
0.854 0.841 0.839 0.793 Adjusted R2
33
Appendix A.3 - Transfer payments and the tax burden in OECD countries, 1970-2011
Appendix A.4 - Factors affecting economic growth (excluding tax composition)
(1) (2) (3)
Lagged growth rate of per capita
GDP 0.368*** 0.348*** 0.314***
(0.063) (0.063) (0.063)
Unemployment rate 0.155*** 0.141*** 0.116***
(0.039) (0.039) (0.040)
Inflation 0.333*** 0.257** 0.215*
(0.107) (0.112) (0.111)
Abs. inflation (>4%) -0.336*** -0.300*** -0.261***
(0.097) (0.098) (0.097)
Share of the population aged
under 15 0.077** 0.082**
(0.035) (0.035)
Openness to foreign trade (% of
GDP) 1.059**
(0.432)
Observations 147 146 146
Adjusted R-squared 0.322 0.339 0.363
Standard errors in parentheses * p<0.10, ** p<0.05, *** p<0.01
34
Appendix A.5 –EETC and GETC Tradeoff
Appendix A.6 - The impact of tax composition on income equality (EECT)
-6
-4
-2
0
2
4
6
EETC
35
-25
-20
-15
-10
-5
0
Un
ited
Sta
tes
Jap
an
Can
ada
Au
stra
lia
Sw
itze
rlan
d
Bel
giu
m
No
rway
Den
mar
k
OE
CD
Un
ited
Kin
gd
om
Fra
nce
Ko
rea
Irel
and
New
Zea
lan
d
Sw
eden
Ger
man
y
Au
stri
a
Isra
el
Sp
ain
Net
her
lan
ds
Fin
lan
d
Ital
y
Po
rtu
gal
Gre
ece
Chil
e
-10
-5
0
5
10
15
20
25
22.60-28.51-34.52-42.81
EETC
GETC
Appendix A.7 – The impact of tax composition on economic growth (GETC)
Appendix A.8 – Efficiency Frontier 1980-1985
36
0
2
4
6
8
10
12
14
16
18
20
1.89-37.17
EETC
GETC
Appendix A.9 – Efficiency Frontier 2013-2014
Appendix A.10 – Distance to the frontier, change between 1980-1985 and 2013-2014
13.5
-5.3
-10.0
-5.0
0.0
5.0
10.0
15.0
