OECD Economics Department Working Papers

ISSN
1815-1973 (online)
DOI
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Searching for the inclusive growth tax grail

The distributional impact of growth enhancing tax reform in Ireland You or your institution have access to this content

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Author(s):
Brendan O’Connor, Terence Hynes, David Haugh1, Patrick Lenain1
Author Affiliations
  • 1: OECD, France

27 Nov 2015
Bibliographic information
No.:
1270
Pages
33
DOI
10.1787/5jrqc6vk3n30-en

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The economic literature suggests that a revenue-neutral shift of tax revenues from income taxes to property taxes would increase GDP per capita in the medium term. This paper analyses for Ireland the consequences of such a shift in the tax mix. In particular, it examines whether this can be carried out in a way that would neither undermine income distribution nor depress government revenue. Simulations using the ESRI tax-benefit model, SWITCH, suggest it is possible to achieve such a broadly revenue-neutral tax shift in a non-regressive way, while lowering marginal tax rates for most taxpayers. In particular, reductions in the Universal Social Charge would reduce marginal and average tax rates and have a positive impact for the income of most households. This could be funded by shifting the tax base toward residential properties, though this might have an adverse effect on income distribution, due to Ireland’s high rates of home ownership throughout the income distribution. The analysis shows that low income groups could be protected through the careful introduction of income-related supports, with revenue losses recovered through a more progressive property tax rate structure. Overall, the simulations show that a shift from labour to property tax can be pro-growth and pro-employment, without equity losses. The paper therefore suggests that tax reform can be inclusive.
Keywords:
Ireland, tax, income tax, benefits, property tax, tax bases, welfare
JEL Classification:
  • H21: Public Economics / Taxation, Subsidies, and Revenue / Efficiency; Optimal Taxation
  • H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies
  • H53: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Welfare Programs
  • I31: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / General Welfare, Well-Being
  • I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Government Policy; Provision and Effects of Welfare Programs
 
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