ABSTRACT
The substantial increases in disparities of wealth and income distribution over the last decades, in combination with the need for tax increases due to the budgetary stress experienced since the Great Recession, have led to calls for progressive tax reforms in many Organisation for Economic Co-operation and Development (OECD) countries. The dominant economic argument against such reforms is that they are detrimental to growth and employment and lead to increased tax avoidance. In this chapter, we provide a critical assessment of the standard arguments and complement them with a macroeconomic perspective. In our view, there is more room for manoeuvre for national governments to increase the progressivity of the tax system and to raise additional revenue than is often suggested. We start with an overview of the regressive taxation trends since the 1980s and show that despite some changes there are no signs of a comprehensive trend reversal, precisely because of the allegedly strong efficiency/equity trade-off that supposedly does not allow for such changes. We then give a critical assessment of the standard wisdom regarding the negative economic effects of progressive tax reform. Finally, we introduce a macroeconomic perspective into our analysis and draw some conclusions concerning future tax policies on the national and international level.
