IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent the views of the IMF, The World Bank, their Executive Boards, their management, or any other entity mentioned herein.
This paper discusses how the structure of the tax system affects its progressivity. It suggests a measure of progressive capacity of tax systems, based on the Kakwani index, but independent of pretax income distributions. Using this and other progressivity measures, the paper (i) documents a decline in progressivity over the last decades and (ii) examines the relationship between progressivity and economic growth. On this relationship, regressions do not reveal a significant impact, suggesting that efficiency costs may be small – at least for degrees of progressivity observed in the sample. Finally, the paper finds that increasing tax progressivity reduces pretax inequality.
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