One of the main goals of the literature on optimal tax systems is to reduce the gap between the highly stylized theory of optimal taxation and the practice of fiscal policy reform. Unfortunately, we know little about the extent to which the international experience follows the policy prescriptions derived from economic theory or how those policy prescriptions would change with economic development.
This new ICePP working paper from ICePP affiliate Cristian Sepulveda predicts the possible effects of economic development on the optimal level and composition of tax revenue and empirically tests these predictions with yearly data on three tax instruments from countries at different stages of development. On average, as countries develop they are shown to collect more tax revenue and switch from regressive tax instruments, like the value added tax, to more progressive taxes that become more productive with development, like personal and corporate income taxes.
Read the full working paper here.
About ICePP’s Working Paper Series
The International Center for Public Policy has published a working paper series since 1997 to disseminate academic research quickly and to stimulate discussion that can expand knowledge, instill optimal practice and build capacity in the public sector around the world to improve human well-being.
Our primary areas of interest are fiscal decentralization and local governance, tax policy, and public budgeting and fiscal management in the global context. Some papers may focus on the United States if the results have international relevance.
All views expressed in this working paper series are those of the respective authors and do not necessarily represent the views of the International Center for Public Policy, the Andrew Young School of Policy Studies or Georgia State University. All papers should be cited properly with reference to the author(s), institution and working paper series. Find all of our working papers here.