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Indirect taxes and government inequality reduction: A cross-national analysis of the developed world

Author

Listed:
  • Vincent A. Mahler

    (Department of Political Science, Loyola University Chicago, United States.)

  • David K. Jesuit

    (Department of Political Science and Public Administration, Central Michigan University, USA)

Abstract

This article explores the role of indirect taxes in helping to finance public social transfers in the developed countries, with special attention to the seeming paradox whereby countries whose social benefit programs provide the most inequality reduction tend to finance those programs with the most regressive tax mix. It finds that the share of indirect taxes in a country’s GDP and the degree to which market inequality is reduced by public social transfers are positively related, even controlling for other tax types, the share of the population that is elderly and the unemployment rate; that a large indirect tax burden is politically possible because of some combination of fiscal illusion and the fact that indirect taxes do not retard economic growth or investment; and that the high indirect taxes that finance public social transfers are often the product of a political process in which democratic corporatism, institutional structures and union density play key roles. The article concludes with a discussion of the incidence of indirect taxes, finding that their regressive effect is outweighed by the redistribution accomplished by the public social transfers they help to finance.

Suggested Citation

  • Vincent A. Mahler & David K. Jesuit, 2018. "Indirect taxes and government inequality reduction: A cross-national analysis of the developed world," Journal of Income Distribution, Ad libros publications inc., vol. 26(2), pages 1-26, July.
    • Handle: RePEc:jid:journl:y:2018:v:26:i:2:p:1-26
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    References listed on IDEAS

    as
    1. Burman, Leonard E. & Slemrod, Joel, 2013. "Taxes in America: What Everyone Needs to Know," OUP Catalogue, Oxford University Press, number 9780199890262.
    2. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2010. "How regressive are indirect taxes? A microsimulation analysis for five European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 326-350.
    3. Beramendi, Pablo & Rueda, David, 2007. "Social Democracy Constrained: Indirect Taxation in Industrialized Democracies," British Journal of Political Science, Cambridge University Press, vol. 37(4), pages 619-641, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    developed countries; government inequality reduction; indirect taxation; welfare state;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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