Progressive taxation remains the global exception, new study shows

What is the level and incidence of taxes and transfers worldwide, since 1980? Which countries do the most to reduce income disparities through taxes and transfers? Is redistribution higher than it was forty years ago?

To answer these questions, Matthew Fisher-Post and Amory Gethin have put together new data sources and methods to build a comprehensive database on the distribution of taxes and transfers in 151 countries since 1980, contributing new evidence on the efficiency and equity of fiscal policy.

Among the key findings that emerge:

• Taxes and transfers both reduce inequality, but with large variations across countries —and transfers are much more redistributive than taxes. Transfers do more to redistribute income in rich countries than in poor countries, mainly because rich countries have larger welfare states (higher levels), but also because they better target government transfers towards poorer households (more progressive). Redistribution rises with development, but this is entirely due to transfers; tax progressivity is uncorrelated with per capita income.

• The global profile of taxation has remained essentially flat since 1980. Anglosphere countries, despite recent decreases in tax progressivity, remain the countries whose taxes do the most to reduce inequality. The tax profiles of other regions are less progressive—and, in the case of many Latin American and Eastern European countries, even regressive overall.

• • While tax-and-transfer systems do vary substantially across countries, they do not significantly alter the ranking of the world’s most and least unequal countries. In this static sense, predistribution matters demonstrably more than redistribution, explaining approximately 80% of cross-country variations in posttax income inequality.
  • If, across countries, inequality in redistribution mirrors inequality in predistribution, the consequences are stark: the poorest people, in the poorest countries, benefit less from redistribution and public services than do the poorest in richer countries.

AUTHORS

• Matthew Fisher-Post, Paris School of Economics
• Amory Gethin, Paris School of Economics

MEDIA CONTACT

•  Alice Fauvel, Communications Manager, alice.fauvel[at]psemail.eu ; press[at]wid.world