Do tax reforms affect income distribution? Evidence from developing countries

We empirically assess the impact of tax reforms on income distribution in developing countries. We apply the local projection method to a new narrative database of Mx reforms covering 45 emerging and low-income countries. Reforms of the personal income or strengthening of the revenue administration lower the disposable Gini and increase the bottom income share. This result does not hold for sub-Saharan Africa. To reduce inequality M a faster pace, it would be more effective to implement Mx reforms when the economy is growing relatively slowly. Finally, the smaller the government spending envelope and the smaller the Mx system, the larger the beneficial impact of Mx reforms on inequality.

Automated summary

This study empirically assesses the impact of tax reforms on income distribution in developing countries, using a new narrative database of reforms in 45 emerging and low-income countries. The results show that personal income tax reforms and strengthening of revenue administration can lower the Gini coefficient and increase the bottom income share, except in sub-Saharan Africa. To reduce inequality at a faster pace, it is more effective to implement tax reforms during slower economic growth. Furthermore, the impact of tax reforms on inequality is greater in countries with smaller government spending and a simplified tax system.