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<p>Does a revenue-neutral shift from indirect to direct taxes reduce income inequality? Our findings indicate that it does. Analyzing a panel of 29 high-income OECD countries from 1996 to 2019, we find a nonlinear relationship between taxation and inequality, shaped by a critical threshold of the overall tax burden. Our key findings reveal the following: (1) the impact of individual taxes on inequality depends on the overall tax burden and is regime-specific; (2) personal income and property taxes reduce inequality once a certain threshold is exceeded, while corporate income taxes tend to exacerbate it; and (3) changes in personal income taxes—followed by property taxes—have the most substantial effect on reducing inequality among tax instruments. These findings emphasize the crucial role of tax policy in addressing income inequality and underscore the importance of a well-designed tax system, particularly in terms of strategically balancing indirect and direct taxation.</p>

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Does a revenue-neutral shift from indirect to direct taxes reduce inequality? Evidence from high-income OECD countries

  • 期刊论文

  • 发表日期：

    2026年1月22日

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  • Hüseyin Şen,
  • Ayşe Kaya

摘要

Does a revenue-neutral shift from indirect to direct taxes reduce income inequality? Our findings indicate that it does. Analyzing a panel of 29 high-income OECD countries from 1996 to 2019, we find a nonlinear relationship between taxation and inequality, shaped by a critical threshold of the overall tax burden. Our key findings reveal the following: (1) the impact of individual taxes on inequality depends on the overall tax burden and is regime-specific; (2) personal income and property taxes reduce inequality once a certain threshold is exceeded, while corporate income taxes tend to exacerbate it; and (3) changes in personal income taxes—followed by property taxes—have the most substantial effect on reducing inequality among tax instruments. These findings emphasize the crucial role of tax policy in addressing income inequality and underscore the importance of a well-designed tax system, particularly in terms of strategically balancing indirect and direct taxation.