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This paper examines how the composition of tax revenues affects monetary and fiscal policy interactions. To do so, we consider an environment where households' wages and interest income as well as firms' profits are taxed. To implement policy, the government follows a Taylor rule and a fiscal rule that links tax revenues to public debt. The fiscal authority also sets the long-run debt to GDP ratio as well as the tax revenue composition. In this setting, both monetary and fiscal policies directly impact the demand for government liabilities. Thus, there is a direct channel through which fiscal policy affects inflation. As a result, the evolution of inflation and real debt are not independent of each other anymore. Because taxes are distortionary, there exists a Laffer curve potentially delivering multiple stationary equilibria. We also show that the composition of tax revenues is key in determining the combinations of monetary and fiscal policies that deliver locally determinate equilibria. When calibrated to the U.S. economy, we find that a lower contribution of corporate taxes to total tax revenues expands the parameter space consistent with a unique steady state. This is especially relevant for a high debt economy. Moreover, we find that a passive monetary and active fiscal policy mix is more likely to generate unique and desirable equilibria. Furthermore, the composition of tax revenues matters for dynamics for this policy regime.
We investigate the relation between changes in tax composition and long-run economic growth using a new dataset covering a broad cross-section of countries with different income levels. We specifically consider 69 countries with at least 20 years of observations on total tax revenue during the period 1970-2009—21 high-income, 23 middle-income and 25 low-income countries. To our knowledge this is the most comprehensive and up-to-date dataset on tax composition and growth. We find that increasing income taxes while reducing consumption and property taxes is associated with slower growth over the long run. We also find that: (1) among income taxes, social security contributions and personal income taxes have a stronger negative association with growth than corporate income taxes; (2) a shift from income taxes to property taxes has a strong positive association with growth; and (3) a reduction in income taxes while increasing value added and sales taxes is also associated with faster growth.
This annual publication gives a conceptual framework to define which government receipts should be regarded as taxes. It presents a unique set of detailed and internationally comparable tax data in a common format for all OECD countries from 1965 onwards.
This annual publication provides details of taxes paid on wages in OECD countries. It covers personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers, and cash benefits received by workers. Taxing Wages 2021 includes a special feature entitled: “Impact of COVID-19 on the Tax Wedge in OECD Countries”.
In response to the growing concerns over the recurring state fiscal crises, this dissertation aims to shed light on the determinants and consequences of revenue volatility. To this end, the dissertation specifically addresses two questions. First, it examines how the composition of tax bases varies across states and what effects tax base composition has on the cyclical volatility of tax revenues. With particular focus on two major revenue sources relied upon by state governments, general sales tax and individual income tax, this study develops a measure of revenue volatility and investigates the questions using pooled OLS on state panel data over the sample period from 1992 to 2007. Overall, the empirical analysis finds that there exists a wide variation in both sales and individual income tax across states. Regression results indicate that tax base composition significantly affects revenue volatility, with economic structure and demographic-economic characteristics being controlled for. Specifically, tax exemptions for household necessities (food and clothing) and producer goods are found to have statistically significant effects on sales tax volatility. On the other hand, exemptions for Social Security benefits, public pensions, and long-term capital gains, along with deduction for local tax property tax paid, are significantly related to income tax volatility. Second, this dissertation examines how cyclical changes in tax revenues affect state fiscal behavior in terms of the level of spending and taxation, using a panel data set for state governments over the period of 1992 to 2007. Specifically, the study tests fixed effects models that explain own-source expenditure and overall tax rate as a function of revenue gap, the cyclical component of state tax revenue. Regression results reveal that cyclical changes in tax revenues are positively related to changes in own-source expenditures, whereas they are negatively related to changes in tax rates, suggesting the relationship between revenue volatility and fiscal instability. Based on these findings, the dissertation concludes by discussing the dynamics of state fiscal behavior over the business cycle and suggesting spending-smoothing rules as a policy solution to structural budget deficits and fiscal crises.
This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected yield, motivation, and announcement and implementation dates of more than 2,000 tax measures across 10 OECD countries. Using this data, we then analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further differentiating between changes in personal income, corporate income, and value added taxes. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.
The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.