The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries

Abstract

The main focus of this paper is on the potential role that taxation and public expenditure policies play in general in affecting income distribution. We find that progressive personal income taxes and corporate income taxes reduce income inequality. The effect of corporate income taxes seems to be eroded away in open or globalized economies. We also generally find that general consumption taxes, excise taxes and customs duties have a negative impact on income distribution. On the expenditure side, we find that higher shares of GDP on social welfare, education, health and housing public expenditures have a positive impact on income distribution.

Keywords: Tax Policy, Public Expenditures, Income Distribution, Tax Progressivity

JEL Classification: H23, H24, H51, H52, H53, H54