The Impact of Uruguay’s 2007 Tax Reform on Equity and Efficiency
AbstractIn 2007, the Uruguayan government implemented a new tax reform which introduced a new progressive labour income tax, a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This paper presents an evaluation of the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for the years 2006 and 2009. Using a Difference-in-Differences technique, the paper shows that the new tax system lowered inequality by 2 Gini points without producing any discernible disincentive effect. These results contrast with the conclusions of supply side-economics and suggest that suitably designed reforms of direct taxation can simultaneously achieve the goals of equity and efficiency.
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Bibliographic InfoPaper provided by Universita' degli Studi di Firenze, Dipartimento di Scienze dell'Economia e Dell'Impresa in its series Working Papers Series with number wp2012_06.rdf.
Length: 18 pages
Date of creation: 2012
Date of revision:
Tax reform; tax incidence; income distribution; efficiency; matching estimators;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-04-03 (Accounting & Auditing)
- NEP-ALL-2012-04-03 (All new papers)
- NEP-PBE-2012-04-03 (Public Economics)
- NEP-PUB-2012-04-03 (Public Finance)
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