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Globalization, Tax Reform Ideals and Social Policy Financing

[journal article]

Ganghof, Steffen

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Abstract This article compares national income tax reforms during the last 25 years. There were two competing models of income tax reform, 'comprehensive' and 'dual' income taxation, the latter of which was in many ways more successful. The reason lies in the structural constraints policy makers face. While taxation of capital income is very costly, creating incentives to lower marginal tax rates, the high overall tax burden on labour makes it difficult to reduce tax rates on labour incomes. These conflicting pressures point towards separate tax rate schedules for capital and labour, as is characteristic of dual income taxes. The analysis has implications for the role of income taxation in achieving social policy outcomes. Most importantly, while progressive taxation of capital income is constrained by high costs, policy makers willing to separate capital and labour income taxation can use the income tax to reduce the tax burden on low wages.
Classification Public Finance; Social Policy
Free Keywords ideas; income taxation; tax competition; tax mix; tax reform
Document language English
Publication Year 2005
Page/Pages p. 77-95
Journal Global Social Policy, 5 (2005) 1
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)