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

Abstract

This paper focuses 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 in-come taxes reduce income inequality. However, the effect of corporate income taxes seems to be eroded away in open or globalized economies. We also 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