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© 2022 International Monetary Fund
WP/22/199
IMF Working Paper
Fiscal Affairs Department
Cross-Country Evidence on the Revenue Impact of Tax Reforms
Prepared by David Amaglobeli, Valerio Crispolti, and Xuguang Simon Sheng1
Authorized for distribution by James Daniel
September 2022
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 IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Many countries face the challenge of raising additional tax revenues without hurting economic growth. Comprehensive, cross-country information on the revenue impact of tax policy changes can thus support informed decision-making on viable reforms. We assess the likely revenue impact of various tax policy changes based on a sample of 21 advanced and emerging market economies, using granular information from the IMF Tax Policy Reform Database v.4.0. Our findings suggest that the revenue yield of a tax policy change varies significantly depending on the tax instrument adopted (e.g., VAT or personal income tax) and the nature of the change (i.e., rate, base). For example, in our sample, base-broadening changes to personal and corporate income taxes as well as to excise and property taxes have generally a more significant and long-lasting revenue yields than rate changes. By contrast, rate changes appear to have a relatively more significant revenue impact in the case of VAT and social security contributions. We also observe an asymmetry in the revenue impact of most tax policy measures when controlling for the direction of tax changes (i.e., its significance varies depending on whether taxes are increased or decreased). While our results are based on qualitative information of tax policy changes (i.e., dummy variables), the revenue yields of rate measures are not materially different from those that would be obtained using quantitative information on the size of the change.
| JEL Classification Numbers: | E62, H24, H25 |
| Keywords: | corporate income tax, personal income tax, value added taxes, social security contributions, excise, property taxes, tax reforms, revenue yield |
| Author’s E-Mail Address: | damaglobeli@imf.org, vcrispolti@imf.org, sheng@american.edu |
| JEL Classification Numbers: | E62, H24, H25 |
| Keywords: | corporate income tax, personal income tax, value added taxes, social security contributions, excise, property taxes, tax reforms, revenue yield |
| Author’s E-Mail Address: | damaglobeli@imf.org, vcrispolti@imf.org, sheng@american.edu |
Title Page
WORKING PAPERS
Cross-Country Evidence on the Revenue Impact of Tax Reforms
Prepared by David Amaglobeli, Valerio Crispolti, and Xuguang Simon Sheng2
Contents
Introduction
The Tax Policy Reform Database
The Database in a Nutshell
Constructing a Tax Change Indicator
Macro Variables
Econometric Method
Impact on Tax Revenues
Baseline Results
Accounting for Both Major and Minor Tax Policy Changes
Using the Implementation Year to Date Tax Policy Changes
Accounting for Direction of Policy Changes
Extensive and Intensive Margins of Tax Rate Changes
Conclusions
References
Appendix A
Appendix B
FIGURES
1. Illustration for Coding Major Tax Policy Changes
2. Distributions of the Coded Major Tax Policy Reforms
3. Baseline Results – Response of Tax-to-GDP Ratio to 1-Step Increase (Broadening) in Tax Rate (Base)
4. Response of Tax-to-GDP Ratio to 1-Step Increase (Broadening) in Tax Rate (Base): Major and Minor Tax Changes
5. Response of Tax-to-GDP Ratio to 1-Step Increase (Broadening) in Tax Rate (Base): Using Implementation Year
6. Response of Tax-to-GDP Ratio to 1-Step Tax Change of Different Directions
7. Response of Tax-to-GDP Ratio to a One-Standard-Deviation Tax Rate Increase in Extensive (EM) or Intensive Margin (IM)
TABLES
1. Distribution of Tax Policy Changes in the TPRD v.4.0
2. Heatmap of Tax Policy Changes Represented by our Tax Change Indicator
3. Mean and Standard Deviation for Coded Tax Policy Changes
David Amaglobeli, Valerio Crispolti: IMF; Xuguang Simon Sheng: American University.
We thank Longji Li and Jiemin Ren for the excellent research assistance and Papa Niang (IMF) for the outstanding work to develop a user-friendly, web-based platform to consult and download the TPRD (www.tprdportal.org). We thank Daniel Shaviro (discussant) and participants at the 113th National Tax Association Annual Meeting, the members of IMF advisory committee on the Tax Policy Reform Database (Victoria Perry, Ivanna Vladkova Hollar, Era Dabla-Norris, Alpa Shah, Tom Ferris, Santiago Acosta Ormaechea, Tristan Walker, and Kirpal Chauhan) for many helpful comments and suggestions. We are also grateful to Katherine Baer, Ruud De Mooij, Vitor Gaspar, Sanjeev Gupta, Paolo Mauro, Hamid Davoodi, Hassan Adan, Manabu Nose, Dora Benedek, Jean-Francois Wen, Carlo Pizzinelli, Mahmoud Harb, and all the participants to the Fiscal Affairs Department and IMF-Spark seminars for their useful comments and suggestions. Simon Sheng thanks the IMF Innovation Lab Unit for financial support. The authors also would like to thank Von Allena for excellent production assistance.