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Progress for the Poor$
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Lane Kenworthy

Print publication date: 2011

Print ISBN-13: 9780199591527

Published to Oxford Scholarship Online: January 2012

DOI: 10.1093/acprof:oso/9780199591527.001.0001

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The Tax Mix Matters Less Than We Thought

The Tax Mix Matters Less Than We Thought

Chapter:
(p.70) (p.71) 8 The Tax Mix Matters Less Than We Thought
Source:
Progress for the Poor
Author(s):

Lane Kenworthy

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199591527.003.0008

To provide transfers and services, governments must tax. In affluent countries the principal sources of government revenue are taxes on income (individual and corporate), payroll, and consumption. What is the optimal mix among these three types of taxes? The comparative empirical record suggests the following: Income taxes are the most progressive of the three. But taxation tends to have relatively little direct impact on the income distribution; transfers and services are far more important. Consumption and payroll taxes have not been the key to expansion of tax revenues in recent decades. The nations that have increased revenues (as a share of GDP) have done so as much via income taxes. Countries relying more heavily on income taxes have not suffered slower economic growth. Nations that rely more heavily on payroll taxes do appear to have had slower employment growth over the past few decades. For policy makers seeking an optimal tax mix, these findings suggest that countries have a good bit of leeway to choose.

Keywords:   taxes, tax mix, income tax, consumption tax, payroll tax, progressivity, redistribution

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