Taxation and inequality : how tax competition has changed the redistributive capacity of nation-states in the OECD

Abstract

Tax policy is of central importance to every state. Without tax revenue, all other government policies, including welfare policies, are bound to fail. In addition to providing the financial basis for the welfare state, the tax system is potentially the most powerful instrument for income redistribution. In this contribution we shed light on the effects of tax competition on economic inequality by mapping the co-development of the changing tax systems and income (re)distribution since the 1980s. We argue that governments’ tax strategies and their effect on inequality are much more complex and heterogeneous than is often acknowledged. Despite the common constraint emanating from global capital markets, governments still have room to manoeuver. The extent to which OECD governments have used this room, however, varies considerably.