Globalization and Factor Income Taxation
How has globalization affected the relative taxation of labor and capital, and why? In this paper, Pierre Bachas, Matthew H. Fisher-Post, Anders Jensen, Gabriel Zucman build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics.
4 key findings
- The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation.
- The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base.
- The rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose.
- International economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed.
Figure: Effective Taxation of Capital and Labor
The figure below shows the key time series: the evolution of the effective tax rates on labor (red) and capital (blue); and, within capital income, the evolution of the effective tax rate (ETR) on corporate profits (dashed blue). Globally, the ETRs on labor and capital converged between 1965 and 2018. This is due to a large increase in labor taxation and a mild decrease in capital taxation.
Explore the data on : GlobalTaxation.world
GlobalTaxation is the companion website of the study. You will find the datasets, interactive graphs, key results, and more information on the methodology.
- Pierre Bachas (World Bank): firstname.lastname@example.org
- Matthew Fisher-Post (Paris School of Economics): email@example.com
- Anders Jensen (Harvard Kennedy School): firstname.lastname@example.org
- Gabriel Zucman (University of California at Berkeley): email@example.com
- Olivia Ronsain: firstname.lastname@example.org; +33 7 63 91 81 68
The authors acknowledge financial support from the Weatherhead Center for International Affairs at Harvard University and the World Bank Development Economics’ Research Support Budget. Zucman acknowledges support from the Stone Foundation. They are indebted to Elie Gerschel, Rafael Proença, Roxanne Rahnama and Anton Reinicke for excellent research assistance. They thank Damien Capelle, Denis Cogneau, Gordon Hanson, Sergey Nigai, Steven Pennings, Thomas Piketty, Tristan Reed, Ariell Reshef, Bob Rijkers, Dani Rodrik, Emmanuel Saez and Roman Zarate for insightful comments. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not represent the views of the National Bureau of Economic Research, of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.