OECD Tax Policy Studies

ISSN :
1990-0538 (online)
ISSN :
1990-0546 (print)
DOI :
10.1787/19900538
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This series consists of studies analyzing of the effects of tax policies that have occurred in the past or might be considered for the future. Its primary purpose is to assist policy makers in designing tax policies that are suited to their objectives.
Also available in: French
 
Choosing a Broad Base - Low Rate Approach to Taxation

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Author(s):
OECD
Publication Date :
28 Oct 2010
Pages :
156
ISBN :
9789264091320 (PDF) ; 9789264091313 (print)
DOI :
10.1787/9789264091320-en

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Many countries will likely face the need to increase tax revenues, as part of fiscal consolidation, during the next few years. But how is this best done? And what are the considerations when choosing between raising tax rates and broadening the tax base by scaling back or abolishing targeted tax provisions (such as allowances, exemptions and preferential rates)? This report aims to answer such questions by taking a close look at the economic and political factors that influence governments’ tax decisions. 

Although many countries have broadened their tax bases over the past 30 years, targeted tax provisions, notably tax expenditures, continue to be significant.  Like public expenditure, targeted tax reliefs mean that (other) tax rates need to be higher in order to finance these reliefs. This report therefore discusses whether such tax provisions continue to be worthwhile. It includes an annex covering country-specific revenue forgone estimates of tax expenditures for selected OECD countries.  

This report also identifies political factors, including the lobbying of influential interest groups, as the main obstacles to base-broadening reforms, and it considers how reforms can be best packaged and presented to overcome such obstacles.

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  • Click to Access:  Foreword
    Many countries are likely to have to raise taxes as part of fiscal consolidation over the next few years, but how is this best done – by broadening the tax base or raising tax rates? This study is intended to provide economic analysis that helps answer such questions.
  • Click to Access:  Executive Summary
    This Report discusses the various economic and political considerations that drive governments’ decisions when considering the choice between broadening the tax base and using targeted tax reliefs (allowances, exemptions, preferential rates, tax deferrals…). In general, tax reforms that broaden tax bases and lower rates should reduce the extent to which tax systems distort work, investment and consumption decisions, increasing output and enabling improvements in social welfare. Nevertheless, despite trends over the past 20-30 years toward broader tax bases, targeted tax provisions continue to be significant in many countries.
  • Click to Access:  Introduction
    Over the past 20-30 years, many countries have implemented tax reforms that have broadened tax bases and lowered rates. In general, such reforms should reduce the extent to which tax systems distort work, investment and consumption decisions, increasing output and enabling improvements in social welfare. Nevertheless, targeted tax provisions, notably tax expenditures, continue to be significant in many countries and in some countries may be increasing in number and significance. This report discusses the various economic and political considerations that drive governments’ decisions when considering the choice between broadening the tax base and using targeted tax reliefs.
  • Click to Access:  Broad Base – Low Rate Approach: Scope and Limitations
    This chapter discusses the trade-offs between the standard desirable characteristics of a tax system (revenue raising, efficiency, equity and simplicity) by type of tax (VAT, PIT and CIT) in the context of a base-broadening and rate-cutting reform, and, at the same time, highlights the main limitations of this type of reform.
  • Click to Access:  Where is there Scope for Base-broadening?
    This chapter summarises the OECD experience in tax expenditure reporting. It discusses the controversy around the definition of tax expenditures and proposes a categorisation of tax reliefs. By analysing the main tax expenditures estimates in OECD countries and other tax indicators, it then considers the extent to which these estimates provide useful measures of the "cost" of these reliefs, explores tax reform trends and the current scope for base-broadening reforms.
  • Click to Access:  Evaluating Tax Provisions: Some Examples
    This chapter briefly presents a possible framework to evaluate the cost-effectiveness of a given tax provision. This framework is then applied to four examples: mortgage interest relief against personal income tax; the VAT exemption on sales and rentals of residential property; preferential tax treatments of retirement savings; and the VAT exemption on financial services.
  • Click to Access:  Base-broadening and Targeted Tax Provisions: Political and Distributional Considerations
    This chapter analyses the role of political and distributional factors in the legislation and implementation process of base-broadening reforms, including: getting the support of a broad group of political actors, the lobbying of interest groups, the framing and the timing considerations of a particular tax policy change, the existence of tax revenue constraints or international rules/legislations.
  • Click to Access:  Annex A. Revenue Forgone Estimates of Main Tax Expenditures in OECD Countries
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