Do tax reforms affect income distribution? Evidence from developing countries

Abstract

We empirically assess the impact of tax reforms on income distribution in developing countries. We apply the local projection method to a new “narrative” database of tax reforms covering 45 emerging and low-income countries. Reforms of the personal income or strengthening of the revenue administration lower the disposable Gini and increase the bottom income share. This result does not hold for sub-Saharan Africa. To reduce inequality at a faster pace, it would be more effective to implement tax reforms when the economy is growing relatively slowly. Finally, the smaller the government spending envelope and the smaller the tax system, the larger the beneficial impact of tax reforms on inequality.