OECD Economics Department Working Papers

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.

English, French

The effects of the tax mix on inequality and growth

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: inequality, growth, household disposable income, tax, taxation
JEL: H27: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenues: Other Sources of Revenue; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies; H2: Public Economics / Taxation, Subsidies, and Revenue; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government
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