Abstract
Tax policy is of central importance to every state. Without tax revenue, all other government policies, including welfare policies, are bound to fail. In addition to providing the financial basis for the welfare state, the tax system is potentially the most powerful instrument for income redistribution. In this contribution we shed light on the effects of tax competition on economic inequality by mapping the co-development of the changing tax systems and income (re)distribution since the 1980s. We argue that governments’ tax strategies and their effect on inequality are much more complex and heterogeneous than is often acknowledged. Despite the common constraint emanating from global capital markets, governments still have room to manoeuver. The extent to which OECD governments have used this room, however, varies considerably.
The authors claim equal authorship.
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Notes
- 1.
The Gini coefficient is a measure of inequality in a given society. It ranges from 0 (full equality) to 100 (full inequality). The gross Gini measures the inequality in the market income of citizens, whereas the net Gini measures the inequality of disposable income, that is, after (direct) taxes and transfers.
- 2.
When talking about size, scholars refer to the size of the tax base. Empirically, this is mostly measured by population, gross domestic product or gross national product. All three are highly correlated. In this chapter we use population size. A country with less than 10 million inhabitants is considered small.
- 3.
The reader will note that country size is not the only factor hindering or fostering tax competition. Other country characteristics include, for instance, English language use, the legal system and good governance.
- 4.
The reader will note that minor changes can always be due to changes in the business cycle rather than active policy changes.
- 5.
The tax burden has decreased not only for the average production worker but also for those earning 67 per cent and those earning 167 per cent of the average worker—with and without children.
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Seelkopf, L., Lierse, H. (2016). Taxation and Inequality: How Tax Competition Has Changed the Redistributive Capacity of Nation-States in the OECD. In: Wulfgramm, M., Bieber, T., Leibfried, S. (eds) Welfare State Transformations and Inequality in OECD Countries. Transformations of the State. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-51184-3_5
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