Relative Effective Taxation and Income Inequality : Evidence from OECD Countries

Using a panel data set of effective tax rates that are directly comparable across OECD countries and over time, we investigate the redistributive effect of labour, consumption and capital tax rates. We show that what matters from the point of view of redistribution is the tax mix rather than the tax rates in isolation of the rest. We also find that as countries become more economically developed, and thus institutionally stronger, the adverse effects of relative tax rates on income equality diminish