Can Progressive Taxation Contribute to Economic Development?
AbstractFinancial instability has increased for many economies in the face of greater capital mobility. Eliminating capital flows, especially portfolio investment flows, may reduce volatility, but it could also result in domestic capital constraints. To overcome this dilemma, policymakers may consider alternatives, such as progressive income taxation, that could raise domestic funds. In this paper, the authors combine several macroeconomic data sources to test the link between progressive taxation and economic stability, economic growth, inequality and fiscal policy. Based on data from 1981 to 2002, they find that progressive taxation provides policymakers with the ability to conduct countercyclical fiscal policies, which in turn contributes significantly to economic stability. They find no evidence that progressive taxation adversely affects economic stability by reducing growth. The authors do find that the possibility of raising progressivity is constrained by capital mobility and by the level of government spending. And policymakers, who may consider consumption taxes such as the value added taxes (VAT), when tax enforcement is ineffective, would see no additional gains in terms of economic stability from the implementation of a VAT in combination with progressive income taxation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp176.
Date of creation: 2008
Date of revision:
Progressive personal income taxation; value added taxes; long-term growth; economic stability; income inequality; government revenue; fiscal balances.;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Younger, Stephen D, et al, 1999. "Tax Incidence in Madagascar: An Analysis Using Household Data," World Bank Economic Review, World Bank Group, vol. 13(2), pages 303-31, May.
- Ravallion, Martin & Shaohua Chen, 1996.
"What can new survey data tell us about recent changes in distribution and poverty?,"
Policy Research Working Paper Series
1694, The World Bank.
- Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," World Bank Economic Review, World Bank Group, vol. 11(2), pages 357-82, May.
- Philip Arestis & Panicos Demetriades, 1999. "Financial Liberalization: The Experience of Developing Countries," Eastern Economic Journal, Eastern Economic Association, vol. 25(4), pages 441-457, Fall.
- Roed,K. & Strom,S., 1999.
"Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?,"
19/1999, Oslo University, Department of Economics.
- Roed, Knut & Strom, Steinar, 2002. " Progressive Taxes and the Labour Market: Is the Trade-Off between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 77-110, February.
- Alan J. Auerbach & Daniel R. Feenberg, 2000.
"The Significance of Federal Taxes as Automatic Stabilizers,"
Journal of Economic Perspectives,
American Economic Association, vol. 14(3), pages 37-56, Summer.
- Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc.
- Engel, Eduardo M. R. A. & Galetovic, Alexander & Raddatz, Claudio E., 1999.
"Taxes and income distribution in Chile: some unpleasant redistributive arithmetic,"
Journal of Development Economics,
Elsevier, vol. 59(1), pages 155-192, June.
- Eduardo M.R.A. Engel & Alexander Galetovic & Claudio E. Raddatz, 1998. "Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic," NBER Working Papers 6828, National Bureau of Economic Research, Inc.
- Eduardo Engel & Alexander Galetovic & Claudio Raddatz, 1998. "Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic," Documentos de Trabajo 41, Centro de Economía Aplicada, Universidad de Chile.
- Richard M. Bird & Eric M. Zolt, 2014.
"Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries,"
Annals of Economics and Finance,
Society for AEF, vol. 15(2), pages 625-683, November.
- Richard M. Bird & Eric M. Zolt, 2005. "Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries," International Tax Program Papers 0508, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
- Richard M. Bird & Eric M. Zolt, 2005. "Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0507, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Bovenberg, A.L. & Ewijk, C. van, 1997.
"Progressive taxes, equity and human capital accumulation in an endogenous growth model with overlapping generations,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-74442, Tilburg University.
- Bovenberg, A. Lans & van Ewijk, Casper, 1997. "Progressive taxes, equity, and human capital accumulation in an endogenous growth model with overlapping generations," Journal of Public Economics, Elsevier, vol. 64(2), pages 153-179, May.
- Caprio,Gerard & Honohan,Patrick & Stiglitz,Joseph E. (ed.), 2001. "Financial Liberalization," Cambridge Books, Cambridge University Press, number 9780521803694, December.
- Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, vol. 94(5), pages 1705-1716, December.
- James H. Stock & Mark W. Watson, 1991.
"A simple estimator of cointegrating vectors in higher order integrated systems,"
Working Paper Series, Macroeconomic Issues
91-3, Federal Reserve Bank of Chicago.
- Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
- Nora Lustig, 2000.
"Crises and the Poor: Socially Responsible Macroeconomics,"
29338, Inter-American Development Bank.
- Nora Lustig, 2000. "Crisis and the Poor: Socially Responsible Macroeconomics," Journal of LACEA Economia, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Bogetic, Zeljko & Hassan, Fareed M. A., 1995. "Distribution of income and the income tax burden in Bulgaria," Policy Research Working Paper Series 1421, The World Bank.
- ELIZABETH M. CAUCUTT & SELAHATTIN İMROHOROĞLU & KRISHNA B. KUMAR, 2006. "Does the Progressivity of Income Taxes Matter for Human Capital and Growth?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 95-118, 01.
- Balassa, Bela, 1989. "Tariff policy and taxation in developing countries," Policy Research Working Paper Series 281, The World Bank.
- Weller, Christian E., 1999.
"Financial crises after financial liberalization: Exceptional circumstances or structural weakness?,"
ZEI Working Papers
B 15-1999, ZEI - Center for European Integration Studies, University of Bonn.
- C. E. Weller, 2001. "Financial Crises After Financial Liberalisation: Exceptional Circumstances or Structural Weakness?," Journal of Development Studies, Taylor & Francis Journals, vol. 38(1), pages 98-127.
- SÃ²nia MuÃ±oz & Stanley Sang-Wook Cho, 2003. "Social Impact of a Tax Reform: The Case of Ethiopia," IMF Working Papers 03/232, International Monetary Fund.
- Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
- Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986.
"Ricardian Consumers with Keynesian Propensities,"
American Economic Review,
American Economic Association, vol. 76(4), pages 676-91, September.
- Scotchmer, Suzanne, 1992. "The Regressive Bias in Tax Enforcement," Public Finance = Finances publiques, , vol. 47(Supplemen), pages 366-71.
- John Schmitt, 2005. "Is It Time to Export the U.S. Tax Model to Latin America?," Challenge, M.E. Sharpe, Inc., vol. 48(3), pages 84-108, May.
- André Decoster, 2005. "How progressive are indirect taxes in Russia?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 705-729, October.
- Shinichi Nishiyama & Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
- Glenn P. Jenkins & Hatice Jenkins & Chun-Yan Kuo, 2006. "Is the Value Added Tax Naturally Progressive?," Working Papers 1059, Queen's University, Department of Economics.
- Levine, Ross, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 688-702, November.
- Ross Levine, 1997.
"Financial Development and Economic Growth: Views and Agenda,"
Journal of Economic Literature,
American Economic Association, vol. 35(2), pages 688-726, June.
- Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
- Christian Weller & Laura Singleton, 2004. "Political Freedom, External Liberalization and Financial Stability," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-22.
- Dobrota Gabriela, 2012. "Correlations Between Fiscal - Budgetary Policy And The Economic Development In Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 98-103, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Judy Fogg).
If references are entirely missing, you can add them using this form.