How to Measure Tax Burden in an Internationally Comparable Way?
National Bank of Poland Working Paper No. 56
35 Pages Posted: 2 Feb 2011
Date Written: March 1, 2009
Abstract
In this paper we address the issue of tax burden and its measurement, beginning with a discussion of use of tax-to-GDP ratio for this purpose. We show that this commonly used indicator has a number of flaws, related to the methodology of calculation of taxes and GDP in national accounts. Firstly, tax revenue calculated in accordance with ESA95 methodology is not perfectly in line with the economic concept of taxes, i.e. levies imposed by the government, which are compulsory and unrequited. Secondly, both tax revenue and GDP include a government component, which distorts the true picture of tax burden. Taxes paid on government expenditure have no impact on the deficit, do not affect incentives, do not constitute a ‘burden’ on economic activity and may also distort cyclical adjustment of the budget. We propose a number of adjustments to deal with these problems and apply them to data for Hungary, Poland and Slovakia. The results indicate that in these countries, the underlying (methodologically and cyclically adjusted) tax burden imposed on economic activity has followed different trends from those implied by the headline tax-to-GDP ratios. The results show that it is also important to look at the headline and adjusted measures of the tax burden in disaggregated terms, namely dividing the tax burden into labour, corporate and indirect tax components.
Keywords: tax burden, cyclical adjustment
JEL Classification: H20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of The1986 Tax Reform Act
-
Tax Avoidance, Evasion, and Administration
By Joel B. Slemrod and Shlomo Yitzhaki
-
The Elasticity of Taxable Income: Evidence and Implications
By Jonathan Gruber and Emmanuel Saez
-
What Happens When You Tax the Rich? Evidence from Executive Compensation
-
A New Method of Estimating Risk Aversion
By Raj Chetty
-
Reported Incomes and Marginal Tax Rates, 1960-2000: Evidence and Policy Implications
-
Are "Real" Responses to Taxes Simply Income Shifting between Corporate and Personal Tax Bases?
By Roger H. Gordon and Joel B. Slemrod