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The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective

Year 2022, Volume: 22 Issue: 4, 473 - 486, 03.10.2022
https://doi.org/10.21121/eab.1063549

Abstract

We perform an empirical analysis to investigate the relationship between income inequality and the tax composition of countries. We first group the countries with respect to the composition of their taxes on income and taxes on goods and services as a share of gross domestic product. The clustering method is employed to identify country groups. Then, we examine the effect of being in a category on the countries’ income inequality represented by the Gini index. To deal with the endogeneity issue, we use the instrumental variable method in the analysis. We find that the composition of tax revenues of countries is associated with the Gini index and the countries that impose a higher tax on income relative to tax on goods and services expose a lower level of income inequality; whereas the countries that place a higher tax on goods and services expose a higher level of income inequality. As a policy implication, structuring an effective tax composition will ultimately help the economies reduce inequality. Understanding the potential of the distributive effect of fiscal policy will contribute to managing taxation tools better and thus improving economic development.

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References

  • Acosta-Ormaechea, S., Yoo, J. (2012). Tax Composition and Growth: A Broad Cross-Country Perspective. IMF-Working-Papers. 12/257. https://doi.org/10.5089/9781616355678.001.
  • Adam, A., Kammas, P., Lapatinas, A. (2015). Income inequality and the tax structure: Evidence from developed and developing countries. Journal of Comparative Economics, 43(1): 138-154. https://doi.org/10.1016/j.jce.2014.05.006.
  • Adam, C. S., & Bevan, D. L. (2005). Fiscal deficits and growth in developing countries. Journal of Public Economics. 89(4): 571–597. https://doi.org/10.1016/j.jpubeco.2004.02.006.
  • Agnello, L., Sousa, R.M. (2014). How does fiscal consolidation impact on income inequality? Review of Income and Wealth, 60(4): 702–726. https://doi.org/10.1111/roiw.12004.
  • Akgun, O., Cournede, B., Fournier, J.M. (2017). The Effects of the Tax Mix on Inequality and Growth. OECD Economics Dep.-Working-Papers, No.1447, OECD Publishing, Paris. https://doi.org/10.1787 /18151973.
  • Alvaredo, F., Chancel, L., Piketty, T., Saez, E., Zucman, G. (2018). World Inequality Report 2018, World Inequality Lab. Retrieved from http://wir2018.wid.world.
  • Bahl, R. W., Bird, R. M. (2008). Tax Policy in Developing Countries: Looking Back and Forward. National Tax Journal, 61(2): 279-301. https://doi.org/10.17310/ntj.2008.2.06.
  • Ball, L., Furceri, D., Leigh, D., Loungani, P. (2013). The distributional effects of fiscal consolidation. IMF-Working-Papers, 13/151. https://doi.org/10.5089/9781475551945.001.
  • Borge, L.E., Rattso, J.J. (2004). Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis. European Economic Review, 48(4): 805-826.
  • Chu, T.T., Hölscher, J. & McCarthy, D. (2020). The impact of productive and non-productive government expenditure on economic growth: an empirical analysis in high-income versus low- to middle-income economies. Empirical Economics, 58: 2403–2430. doi.org/10.1007/s00181-018-1616-3.
  • Ciminelli, G., Ernst, E., Merola, R., Giuliodori, M. (2019). The composition effects of tax-based consolidation on income inequality. European Journal of Political Economy, 27: 107-124. https://doi.org/10.1016/j.ejpoleco.2018.08.009.
  • Clements, B., Mooij, R., Gupta, S. and Keen, M. (2015), Inequality and Fiscal Policy (Washington: International Monetary Fund). https://doi.org/10.5089/9781513567754.071.
  • Cubero, R., and Hollar, I.V. (2010). Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America. IMF Working Paper. 10(112). https://doi.org/10.5089/9781455200719.001.
  • Devarajan, S., Swaroop, V., and Zou, H. (1996). The Composition of Public Expenditure and Economic Growth. Journal of Monetary Economics. 37(2–3): 313–344. https://doi.org/10.1016/S0304-3932(96)90039-2.
  • Devries, P., Guajardo, J., Leigh, D., Pescatori, A. (2011). A New Action-based Dataset of Fiscal Consolidation. IMF Working Papers 11(128). International Monetary Fund. https://doi.org/10.5089/9781455264407.001.
  • Drucker, L., Krill, Z., Geva, A. (2017). The Impact of Tax Composition on Income Inequality and Economic Growth. Ministry of Finance Publications and Reviews. Retrieved from: https://mof.gov.il/en/PublicationsAndReviews/EconomicData/ DocLib/Article_082017_Eng.pdf
  • Easterly, W. (1995). What do cross-country studies teach about government involvement, prosperity, and economic growth? Comments on: Joel Slemrod. Brookings Papers on Economic Activity 2: 373–431. https://doi.org/10.2307/2534615.
  • Fournier, J.M. and Johansson, A. (2016). The Effect of the Size and the Mix of Public Spending on Growth and Inequality. OECD Working Paper. 1344. Organization for Economic Cooperation and Development. https://doi.org/10.1787/18151973.
  • ICTD/UNU-WIDER. (2019). Government Revenue Dataset. Retrieved from: https://www.wider.unu. edu / project/government-revenue-dataset.
  • Jerven, M. (2013). Comparability of GDP estimates in sub-Saharan Africa: The effect of revisions in sources and methods since structural adjustment. Review of Income and Wealth. 59: 16–36. http://dx.doi. org/10.1111/roiw.12006.
  • Kanbur, R. (2000). Income Distribution and Development. Handbook of Income Distribution, edited by A.B. Atkinson and F. Bourguignon, Elsevier. ISBN: 9780444816313.
  • Martinez-Vazquez, J., Vulovic, V., Dodson, B.M. (2012). The impact of tax and expenditure policies on income distribution: Evidence from a large panel of countries. Hacienda Publica Espanola, 200(1): 95–130. Retrieved from: https://www.ief.es/docs/destacados/publicaciones/revistas/hpe/200_Art4 .pdf
  • Meltzer, A., Richard, S. (1983). Tests of a rational theory of the size of government. Public Choice. 41: 403–418. https://doi.org/10.1007/BF00141072.
  • McNabb, K. (2017). Toward Closer Cohesion of International Tax Statistics. WIDER-Working-Paper 184/2017. http://dx.doi.org/10.35188/UNU-WIDER/2017/410-0.
  • Muinelo-Gallo, L., Roca-Sagales, O. (2013). Joint determinants of fiscal policy, income inequality and economic growth. Economic Modeling, 30:814–824. https://doi.org/10.1016/j.econmod.2012.11.009
  • Pickering, A., Rajput, S. (2018). Inequality and the composition of taxes. International Tax Public Finance, 25: 1001-1028. https://doi.org/10.1007/s10797-017-9476-x.
  • Prichard, W., Cobham, A., Goodall, A. (2014). The ICTD Government Revenue Dataset. ICTD-Working-Paper 19. http://dx.doi.org/10.2139/ssrn.2496442.
  • Stock, J. H., Wright, J. H., and Yogo, M. (2002). A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments. Journal of Business and Economic Statistics, 20: 518–529. https://doi.org/10.1198/073500102288618658.
  • Tanzi, V. (1989). The impact of macroeconomic policies on the level of taxation and fiscal balance in developing countries. IMF Staff Papers. 36: 633−656. https://doi.org/10.2307/3867050.
  • Woo J., Bova, E., Kinda, T. and Zhang, Y.S. (2017). Distributional Consequences of Fiscal Adjustments: What Do the Data Say?. IMF Economic Review. 65(2): 273–307. https://doi.org/10.1057/s41308-016-0021-1.
  • World Inequality Database (2018). https://wid.world/world/
  • World Bank, World Development Indicators. (2020). https://databank.worldbank.org/ source /world-development-indicators/preview/on.

Gelir Eşitsizliği ve Vergi Bileşimi arasındaki İlişki: Ülkeler arası değerlendirme

Year 2022, Volume: 22 Issue: 4, 473 - 486, 03.10.2022
https://doi.org/10.21121/eab.1063549

Abstract

Ülkelerin gelir eşitsizliği ve vergi bileşimlerini araştırmak üzere bir ampirik analiz yapılmıştır. Bunun için öncelikle gayri safi yurtiçi hasılanın payı olarak gelir ile mal ve hizmetlerden alınan vergi bileşimlerine göre ülkeler gruplandırılmıştır. Ülke gruplarını belirlemede kümeleme yöntemi kullanılmıştır. Daha sonra ülkelerin bu belirlenen kategorilerden birinde olmasının, ülkelerin Gini endeksi ile temsil edilen gelir eşitsizliği üzerinde bir etkisi olup olmadığı araştırılmıştır. Analizlerde içsellik sorunu ile başa çıkmak üzere araç değişkenler yöntemi kullanılmıştır. Buna göre ülkelerin vergi geliri bileşimlerinin gelir eşitsizliği ile ilişkisi olduğu doğrulanmıştır. Mal ve hizmetlerden alınan vergi tutarlarından daha fazla gelir vergisi uygulayan ülkelerin, gelir eşitsizliği düzeylerinin daha düşük olduğu, öte yandan mal ve hizmetlerden alınan vergilerin, gelirden elde edilen vergilere göre daha fazla olduğu ülkelerde ise gelir eşitsizliğinin daha yüksek olduğu bulunmuştur. Politika olarak etkin bir vergi bileşimi yapısı oluşturmak nihayetinde ekonomilerin eşitsizliği azaltmasına yardımcı olacaktır. Ayrıca maliye politikasının dağıtım etkisi potansiyelinin farkında olmak, vergi aracını daha iyi yönetmeye katkı sağlayacak ve böylelikle iktisadi gelişmeyi artıracaktır.

Project Number

-

References

  • Acosta-Ormaechea, S., Yoo, J. (2012). Tax Composition and Growth: A Broad Cross-Country Perspective. IMF-Working-Papers. 12/257. https://doi.org/10.5089/9781616355678.001.
  • Adam, A., Kammas, P., Lapatinas, A. (2015). Income inequality and the tax structure: Evidence from developed and developing countries. Journal of Comparative Economics, 43(1): 138-154. https://doi.org/10.1016/j.jce.2014.05.006.
  • Adam, C. S., & Bevan, D. L. (2005). Fiscal deficits and growth in developing countries. Journal of Public Economics. 89(4): 571–597. https://doi.org/10.1016/j.jpubeco.2004.02.006.
  • Agnello, L., Sousa, R.M. (2014). How does fiscal consolidation impact on income inequality? Review of Income and Wealth, 60(4): 702–726. https://doi.org/10.1111/roiw.12004.
  • Akgun, O., Cournede, B., Fournier, J.M. (2017). The Effects of the Tax Mix on Inequality and Growth. OECD Economics Dep.-Working-Papers, No.1447, OECD Publishing, Paris. https://doi.org/10.1787 /18151973.
  • Alvaredo, F., Chancel, L., Piketty, T., Saez, E., Zucman, G. (2018). World Inequality Report 2018, World Inequality Lab. Retrieved from http://wir2018.wid.world.
  • Bahl, R. W., Bird, R. M. (2008). Tax Policy in Developing Countries: Looking Back and Forward. National Tax Journal, 61(2): 279-301. https://doi.org/10.17310/ntj.2008.2.06.
  • Ball, L., Furceri, D., Leigh, D., Loungani, P. (2013). The distributional effects of fiscal consolidation. IMF-Working-Papers, 13/151. https://doi.org/10.5089/9781475551945.001.
  • Borge, L.E., Rattso, J.J. (2004). Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis. European Economic Review, 48(4): 805-826.
  • Chu, T.T., Hölscher, J. & McCarthy, D. (2020). The impact of productive and non-productive government expenditure on economic growth: an empirical analysis in high-income versus low- to middle-income economies. Empirical Economics, 58: 2403–2430. doi.org/10.1007/s00181-018-1616-3.
  • Ciminelli, G., Ernst, E., Merola, R., Giuliodori, M. (2019). The composition effects of tax-based consolidation on income inequality. European Journal of Political Economy, 27: 107-124. https://doi.org/10.1016/j.ejpoleco.2018.08.009.
  • Clements, B., Mooij, R., Gupta, S. and Keen, M. (2015), Inequality and Fiscal Policy (Washington: International Monetary Fund). https://doi.org/10.5089/9781513567754.071.
  • Cubero, R., and Hollar, I.V. (2010). Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America. IMF Working Paper. 10(112). https://doi.org/10.5089/9781455200719.001.
  • Devarajan, S., Swaroop, V., and Zou, H. (1996). The Composition of Public Expenditure and Economic Growth. Journal of Monetary Economics. 37(2–3): 313–344. https://doi.org/10.1016/S0304-3932(96)90039-2.
  • Devries, P., Guajardo, J., Leigh, D., Pescatori, A. (2011). A New Action-based Dataset of Fiscal Consolidation. IMF Working Papers 11(128). International Monetary Fund. https://doi.org/10.5089/9781455264407.001.
  • Drucker, L., Krill, Z., Geva, A. (2017). The Impact of Tax Composition on Income Inequality and Economic Growth. Ministry of Finance Publications and Reviews. Retrieved from: https://mof.gov.il/en/PublicationsAndReviews/EconomicData/ DocLib/Article_082017_Eng.pdf
  • Easterly, W. (1995). What do cross-country studies teach about government involvement, prosperity, and economic growth? Comments on: Joel Slemrod. Brookings Papers on Economic Activity 2: 373–431. https://doi.org/10.2307/2534615.
  • Fournier, J.M. and Johansson, A. (2016). The Effect of the Size and the Mix of Public Spending on Growth and Inequality. OECD Working Paper. 1344. Organization for Economic Cooperation and Development. https://doi.org/10.1787/18151973.
  • ICTD/UNU-WIDER. (2019). Government Revenue Dataset. Retrieved from: https://www.wider.unu. edu / project/government-revenue-dataset.
  • Jerven, M. (2013). Comparability of GDP estimates in sub-Saharan Africa: The effect of revisions in sources and methods since structural adjustment. Review of Income and Wealth. 59: 16–36. http://dx.doi. org/10.1111/roiw.12006.
  • Kanbur, R. (2000). Income Distribution and Development. Handbook of Income Distribution, edited by A.B. Atkinson and F. Bourguignon, Elsevier. ISBN: 9780444816313.
  • Martinez-Vazquez, J., Vulovic, V., Dodson, B.M. (2012). The impact of tax and expenditure policies on income distribution: Evidence from a large panel of countries. Hacienda Publica Espanola, 200(1): 95–130. Retrieved from: https://www.ief.es/docs/destacados/publicaciones/revistas/hpe/200_Art4 .pdf
  • Meltzer, A., Richard, S. (1983). Tests of a rational theory of the size of government. Public Choice. 41: 403–418. https://doi.org/10.1007/BF00141072.
  • McNabb, K. (2017). Toward Closer Cohesion of International Tax Statistics. WIDER-Working-Paper 184/2017. http://dx.doi.org/10.35188/UNU-WIDER/2017/410-0.
  • Muinelo-Gallo, L., Roca-Sagales, O. (2013). Joint determinants of fiscal policy, income inequality and economic growth. Economic Modeling, 30:814–824. https://doi.org/10.1016/j.econmod.2012.11.009
  • Pickering, A., Rajput, S. (2018). Inequality and the composition of taxes. International Tax Public Finance, 25: 1001-1028. https://doi.org/10.1007/s10797-017-9476-x.
  • Prichard, W., Cobham, A., Goodall, A. (2014). The ICTD Government Revenue Dataset. ICTD-Working-Paper 19. http://dx.doi.org/10.2139/ssrn.2496442.
  • Stock, J. H., Wright, J. H., and Yogo, M. (2002). A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments. Journal of Business and Economic Statistics, 20: 518–529. https://doi.org/10.1198/073500102288618658.
  • Tanzi, V. (1989). The impact of macroeconomic policies on the level of taxation and fiscal balance in developing countries. IMF Staff Papers. 36: 633−656. https://doi.org/10.2307/3867050.
  • Woo J., Bova, E., Kinda, T. and Zhang, Y.S. (2017). Distributional Consequences of Fiscal Adjustments: What Do the Data Say?. IMF Economic Review. 65(2): 273–307. https://doi.org/10.1057/s41308-016-0021-1.
  • World Inequality Database (2018). https://wid.world/world/
  • World Bank, World Development Indicators. (2020). https://databank.worldbank.org/ source /world-development-indicators/preview/on.
There are 32 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Articles
Authors

Oya Ekici 0000-0001-5008-0238

Project Number -
Early Pub Date June 27, 2022
Publication Date October 3, 2022
Acceptance Date June 28, 2022
Published in Issue Year 2022 Volume: 22 Issue: 4

Cite

APA Ekici, O. (2022). The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective. Ege Academic Review, 22(4), 473-486. https://doi.org/10.21121/eab.1063549
AMA Ekici O. The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective. ear. October 2022;22(4):473-486. doi:10.21121/eab.1063549
Chicago Ekici, Oya. “The Nexus Between Income Inequality and Tax Composition: A Cross-Country Perspective”. Ege Academic Review 22, no. 4 (October 2022): 473-86. https://doi.org/10.21121/eab.1063549.
EndNote Ekici O (October 1, 2022) The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective. Ege Academic Review 22 4 473–486.
IEEE O. Ekici, “The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective”, ear, vol. 22, no. 4, pp. 473–486, 2022, doi: 10.21121/eab.1063549.
ISNAD Ekici, Oya. “The Nexus Between Income Inequality and Tax Composition: A Cross-Country Perspective”. Ege Academic Review 22/4 (October 2022), 473-486. https://doi.org/10.21121/eab.1063549.
JAMA Ekici O. The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective. ear. 2022;22:473–486.
MLA Ekici, Oya. “The Nexus Between Income Inequality and Tax Composition: A Cross-Country Perspective”. Ege Academic Review, vol. 22, no. 4, 2022, pp. 473-86, doi:10.21121/eab.1063549.
Vancouver Ekici O. The nexus between Income Inequality and Tax Composition: A Cross-Country Perspective. ear. 2022;22(4):473-86.