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The scope for progressive tax reform in the OECD countries: A macroeconomic perspective with a case study for Germany

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  • Sarah Godar
  • Christoph Paetz
  • Achim Truger

Abstract

The trend of increasing inequality in the distribution of income and wealth in most developed countries has led to calls for corrective tax increases for the rich and wealthy. Such calls are often confronted with the claim that higher taxes on top personal incomes, corporate income and wealth are detrimental to growth and employment and/or will foster tax avoidance. This paper argues that even the dominating theoretical framework leaves substantial leeway for redistributive taxation. Furthermore, from a Keynesian macroeconomic perspective redistribution may even be systematically conducive to growth and employment. At the same time a change towards such a policy of redistribution may for some economies, particularly the German one, well be the prerequisite for compliance with the European Fiscal Compact if an increase of the macroeconomic imbalances that have come to be seen as a root cause of the global financial and economic crisis 2008/2009 and also the Euro crisis by many observers is to be avoided. Therefore, besides attempts at international tax coordination and harmonisation, national tax policies should actively use their room of manoeuvre for progressive taxation to correct the disparities in the income distribution and at the same time to increase the fiscal space.

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  • Sarah Godar & Christoph Paetz & Achim Truger, 2015. "The scope for progressive tax reform in the OECD countries: A macroeconomic perspective with a case study for Germany," IMK Working Paper 150-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  • Handle: RePEc:imk:wpaper:150-2015
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    Cited by:

    1. Ruoff, Bea., 2016. "Labour market developments in Germany : tales of decency and stability," ILO Working Papers 994899913402676, International Labour Organization.
    2. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.

    More about this item

    Keywords

    Macroeconomic effects of taxation; redistribution and macroeconomic performance; macroeconomic imbalances;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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