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Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit

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  • Rajput, Sheraz
  • Qureshi, Fiza
  • Aziz, Tariq

Abstract

This study investigates the dynamic relationship between demography and direct taxes on income, profit, and capital gains. The data, for the period 1990–2017, encompass 89 OECD and non-OECD countries. The study employs generalized method of moments (GMM) estimation to identify the relationships. The findings suggest a U-shaped correlation in OECD countries, which supports the argument that a rise in the aging population initially decreases taxes on income, profit, and capital gains. Conversely, any further rise in the aging population after reaching a certain threshold leads to increased taxes on income, profit, and capital gains. Furthermore, across non-OECD countries, the findings suggest an inverted U-shaped relationship implying that the labor income tax rate will fall with a rise in the dependency ratio until the aged population constitutes half of all voters, but the correlation between these variables becomes positive if the number of aged people reaches 50% of voters or more. The findings lead to the suggestion that other potential factors, such as empathy among family members, as opposed to political muscle only may affect voters’ behavior in a median voter model.

Suggested Citation

  • Rajput, Sheraz & Qureshi, Fiza & Aziz, Tariq, 2021. "Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 28(1).
    • Handle: RePEc:ags:thkase:334390
    DOI: 10.22004/ag.econ.334390
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    References listed on IDEAS

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    More about this item

    Keywords

    Public Economics;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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