The Impact of Taxes on Growth and Distribution in Developed Capitalist Countries: A Cross-National Study

Abstract

Has the scope of public planning in contemporary capitalist economies promoted or hindered economic growth and income distribution? We explore this question by assessing the impact of various mechanisms for raising government revenues on investment, growth, and income distribution in 22 developed market economy countries. The article considers whether growth and distribution are affected differently by governments' relative reliance on personal and corporate income taxes, social security contributions, property taxes, and sales and value added taxes, or by the relative progressivity of tax mechanisms. Our findings lend support to the assertion that fiscal instruments (especially personal income taxes) can be used successfully to achieve greater income equality. On the other hand, these findings run counter to the conventional notion that an automatic trade-off exists between an active public sector and a dynamic, expanding economy: although there is surely some tension between the economic goals of growth and equality, it is not at all clear that they are necessarily incompatible or that government can contribute only to the latter.

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