DP866 Computing Effective Tax Rates on Factor Incomes and Consumption: An International Macroeconomic Perspective

Author(s): Enrique G Mendoza, Assaf Razin, Linda Tesar
Publication Date: January 1994
Keyword(s): Capital Income Tax, Consumption Tax, International Tax Policy, Investment, Labour Income Tax, Labour Supply, Savings
JEL(s): E62, F41, H2, H3, H87
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=866

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.