Tax Policy in OECD Countries: Past Experiences and Future Directions

This paper first notes that the broad tax policy trends in OECD countries since the 1970ies towards lower corporate and marginal income tax rates, and lower taxes on capital income, wealth, wealth transfers and high value assets, have been largely motivated by the assumption that high taxes are bad for economic growth and that tax cuts for high income earners would promote growth, increase tax revenue and create benefits that would trickle down to all. A subsequent literature review, however, finds that there is no conclusive evidence to support those assumptions while revealing that these tax policy trends disproportionally benefitted the wealthy thus pushing up income and wealth inequality, while contributing to increased budget deficits and public debt levels. The paper concludes that OECD countries should therefore move away from tax policies based on political wishful thinking and towards tax policies that, while promoting economic growth, reduce inequality and incentivise the nternalisation of the environmental costs of production and consumption.