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Taxation and Income Inequality in Developing Countries: An Empirical Investigation

Author

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  • N''Yilimon Nantob

    (University of Lomé)

Abstract

This paper studies the relationship between taxation and income inequality in 46 Developing countries. The research takes an empirical approach to analyze the effects of taxes revenue, taxes on goods and services, taxes on income, profits, and capital gains and taxes on international trade on income inequality. Mobilizing a dynamic panel data over the period 2000–2012 and using the system GMM estimator to address endogeneity issues, the econometric results yield that (i) there is a negative and robust relationship between taxes revenue and income inequality (ii) there is a positive and robust relationship between taxes on goods and services and taxes on income, profits, and capital gains and income inequality (iii) there is a positive relationship between taxes on international trade and income inequality. To allow the marginal effect of one explanatory variable to depend upon the level of another explanatory variable, the study further incorporates interaction terms of taxes and governance variables in the model and analyses there effect on income inequality.

Suggested Citation

  • N''Yilimon Nantob, 2016. "Taxation and Income Inequality in Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 36(3), pages 1508-1522.
    • Handle: RePEc:ebl:ecbull:eb-15-00463
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    Cited by:

    1. Tram T.H. Nguyen and Wonho Song, 2021. "Carbon Pricing and Income Inequality: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 46(2), pages 155-182, June.
    2. Achillefs Karakotsios & Constantinos Katrakilidis & Dimitrios Dimitriadis & Theodoros Christoforidis, 2020. "Examining the relationship between income inequality, taxation and economic freedom: a panel cointegration approach," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 206-215.
    3. Mark Edem Kunawotor & Charles Barnor & Raymond Dziwornu, 2021. "The Income Redistributive Effects of Taxes in Africa," Economics Bulletin, AccessEcon, vol. 41(3), pages 1579-1591.

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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D3 - Microeconomics - - Distribution

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