Working Paper: CEPR ID: DP866
Authors: Enrique G. Mendoza; Assaf Razin; Linda L. Tesar
Abstract: This paper proposes a methodology for computing effective average tax rates using national accounts and revenue statistics, and applies it to construct time-series of tax rates for the seven largest industrialized countries. The resulting tax rates are consistent with available estimates of marginal tax rates, and with basic principles linking tax rates to savings, investment, and labour supply in neoclassical models, and to the rate of unemployment in job search models. These results suggest that the proposed tax rates are useful approximations to those faced by economic agents in models based on optimizing behaviour.
Keywords: international tax policy; consumption tax; capital income tax; labour income tax; savings; investment; labour supply
JEL Codes: E62; F41; H2; H3; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| effective average tax rate on capital income (D33) | savings rates (D14) |
| sum of labor and consumption taxes (H29) | average number of hours worked (J22) |
| labor income tax (H31) | unemployment rate (J64) |