OECD Economics Department Working Papers

ISSN: 
1815-1973 (online)
http://dx.doi.org/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.

 

The capacity of governments to raise taxes You or your institution have access to this content

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Author(s):
Oguzhan Akgun1, David Bartolini1, Boris Cournède1
Author Affiliations
  • 1: OECD, France

11 Sep 2017
Bibliographic information
No.:
1407
Pages:
38
http://dx.doi.org/10.1787/6bee2df9-en

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This paper investigates the factors that shape governments’ capacity to collect revenue. To do so, it analyses how tax revenue responds to tax rates using evidence from a panel of 34 OECD countries over 1978-2014. The estimations show that the response of revenue to rates weakens as rates become higher, confirming the existence of a hump-shaped relationship between tax revenue and rates for corporate income taxation and providing a new contribution by analysing value-added taxation. Importantly, the estimated responses of revenue to tax rates vary, in some cases very strongly from an economic perspective, depending on country-specific policies and framework conditions. In particular, the corporate income tax revenue-generating potential of hiking the effective rate shrinks much more quickly in more open economies than in more closed ones. Tax revenue is found to be more responsive to tax increases in countries where the tax authorities have more resources. The investigations also cover personal income taxation. They point to diminishing revenue returns of increasing the effective marginal tax rates that apply at substantially above-average income levels.
Keywords:
interactions, value added tax, effective marginal tax rate, framework conditions, personal income tax, country-specific circumstances, social security contributions, Laffer curve
JEL Classification:
  • H20: Public Economics / Taxation, Subsidies, and Revenue / General
  • H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies
  • H26: Public Economics / Taxation, Subsidies, and Revenue / Tax Evasion and Avoidance
 
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