How tax can tackle inequality

OECD pushes inclusive growth but critics are concerned that policies could weigh on innovation.

The Organisation for Economic Co-operation and Development (OECD) believes there is an opportunity to achieve more inclusive growth through tax policy. Critics, however, are concerned that such policies could weigh on innovation and growth.

Tax policy design principles for inclusive growth (OECD)

1. Broadening tax bases

• Maintaining broad tax bases and low tax rates
• Removing tax expenditures that are not well-targeted at redistributive goals
• Broadening the social security base

2. Strengthening the overall progressivity of the fiscal system

• Taxing capital and its returns in efficient and equitable ways
• Introducing or strengthening progressivity beyond personal income tax
• Strengthening horizontal equity to enhance vertical equity
• Strengthening the link between taxes paid and benefits received across the life cycle
• Providing adequate and targeted compensation or relief to the losers of pro-growth tax reforms

3. Affecting pre-tax behaviors and opportunities

• Incentivizing agents operating in the informal economy to become formal
• Promoting greater equality of market income and opportunity through taxes
• Aligning private and social costs and returns through tax reform

4. Enhancing tax policy and administration

• Solidifying the administrative feasibility of tax policy design
• Strengthening tax administration (e.g., enhance revenue collection, provide tax certainty, deliver high-quality taxpayer services) and increasing “value for tax money”
• Tackling tax avoidance and evasion
• Embedding inter-generational and gender equity in tax policy design
• Improving the quality of tax statistics, data and tax policy indicators
• Improving analytical frameworks to assess tax policy

This article was originally published in Tax Insights on 7 September 2017.