Tax Equity in Low- and Middle-Income Countries
Journal of Economic Perspectives
vol. 38,
no. 1, Winter 2024
(pp. 55-80)
(Complimentary)
Abstract
Income inequality is high and persistent in developing countries. In this paper, we ask what role taxation can or might play in reducing inequality in low and middle-income countries. Drawing on the recent literature, three findings emerge. Due to both structural factors and limited enforcement capacity, the effective distributional impacts of taxes often deviate from their 'statutory' objectives, in ways that are hard to predict based on evidence from high-income countries. Moreover, administrative reforms which are meant to be distributionally neutral end up having significant equity impacts because of the practical realities of implementation. Finally, the global challenges which tax authorities face to tax the very top of the income distribution appear to be even more pronounced in developing countries. We conclude by offering thoughts on future research and emphasize the need to carefully study equity characteristics of taxes at each stage of a country's development path.Citation
Bachas, Pierre ⓡ Anders Jensen ⓡ Lucie Gadenne. 2024. "Tax Equity in Low- and Middle-Income Countries." Journal of Economic Perspectives, 38 (1): 55-80. DOI: 10.1257/jep.38.1.55Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- H22 Taxation and Subsidies: Incidence
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H71 State and Local Taxation, Subsidies, and Revenue
- K34 Tax Law
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O23 Fiscal and Monetary Policy in Development
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