the effects of tax rates and corruption on tax revenues international comparison on oecd countries,...
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The effects of tax rates and corruption on tax revenues International comparison on OECD countries, 2000-2004
Mária Lackó
Institute of Economics, Hungarian Academy of Sciences
Outline
1. My approach: the effect of tax rates on the labor market and on tax revenues are investigated in their combination with the effect of corruption
2. The effects of the labor tax rates combined with corruption on various segments of the labor market
- employment rate
- hidden economy ???
- self-employment rate
3. The effects of labor tax rates combined with corruption on the tax revenues
4. Shortfalls in tax revenues due to high tax rates with high level of corruption: related share is an indicator of the hidden economy
Tax wedge and corruption in the OECD countries, 2004
Australia
Austria
Belgium
Canada
Czech RepublicDenmark
Finland
FranceGermany
Greece
Hungary
Irland
Italy
Japan
Luxemburg
Netherlands
New Zealand
Norway
Poland
PortugalSlovakia
Spain
Sweden
Switzerland
Turkey
USA
UK
Average
0
10
20
30
40
50
60
0 1 2 3 4 5 6 7 8
Level of corruption
Ta
x w
ed
ge
(n
ew
), %
of
lab
or
co
sts
Tax wedge and employment rate, OECD countries, 2003
AustraliaAustria
Belgium
Canada
Czech R
Denmark
Finland
France
Germany
GreeceHungary
Ireland
Italy
Japan
NetherlandsNew Zealand
Norway
Poland
Portugal
Slovak R
Spain
Sweden
Switzerland
Turkey
United KUSA
y = -0.4445x + 81.082
R2 = 0.2512
40
45
50
55
60
65
70
75
80
10 15 20 25 30 35 40 45 50 55
Tax wedge, % of labor costs
Em
plo
ym
en
t ra
te,
% o
f w
ork
ing
ag
e p
op
ula
tio
n
Tax wedge combined with corruption and the employment rate, OECD countries, 2003
USAUnited K
Turkey
Switzerland
Sweden
Spain
Slovak R
Portugal
Poland
Norway
New ZealandNetherlands
Japan
Italy
Ireland
Hungary
Greece
Germany
France
Finland
Denmark
Czech R
Canada
Belgium
AustriaAustralia
y = -0.0818x + 74.293
R2 = 0.7947
40
45
50
55
60
65
70
75
80
0 50 100 150 200 250 300 350
Tax wedge x Corruption
Em
plo
ym
en
t ra
te
Regressions explaining the size of the hidden economy
Dependent variable: Share of the hidden economy in the GDP, per cent
Independent var. [1] [2] [3]
ln GDP -11.28 -7.63 -7.56[-6.04] [-2.87] [-3.71]
TAXWEDGE 0.3 0.26[3.26] [3.60]
CORRUPTION 0.94[2.18]
TAXWEDGE*CORRUPTION 0.13[7.65]
R2 0.69 0.73 0.74RMSE 3.64 3.5 3.31n 21 21 21Method OLS OLS OLS
Source of data on hidden economy: Schneider (2004), 21 OECD countries
Regression equations explaining the self-employment rate, OECD countries[1] [2] [3] [4] [5]
AGR 1.14 1.14 1.14 1.12 0.97[11.7] [11.7] [11.7] [12.2] [20.9]
TAX WEDGE 0.015 0.012 -0.015 0.044 -0.039[0.37] [0.29] [-0.33] [1.43] [-1.72]
CORRUPTION 0.32[1.44]
TAX WEDGE* CORRUPTION 0.01 0.01 0.022[1.66] [1.88] [7.08]
Dummy Slovakia yes yes yes yes yes
Constant 8.77 8.01 8.85 7 10.1[5.2] [4.64] [5.32] [5.0] [8.48]
Numver of obs. 96 96 96 95 216Number of countries 25 25 25 25 26
R2 within 0.42 0.41 0.41 0.51 0.67R2 between 0.83 0.84 0.84 0.84 0.85R2 overall 0.81 0.83 0.83 0.83 0.85
Method RE GLS RE GLS RE GLS RE GLS RE GLSYears 2000-2004 2000-2004 2000-2004 2000-2004 1995-2004Note new tw new tw new tw old tw old tw
Tax wedge in Hungary, 1995-2004
I. II.Single One earner Single One earner
years with two children with two children1995 51.4 37.41996 52.0 40.41997 52.0 40.81998 51.6 40.31999 50.7 35.92000 51.4 35.0 52.7 41.52001 49.0 32.8 54.0 41.62002 49.0 33.9 53.7 42.22003 45.6 30.3 50.8 39.42004 45.8 31.3 51.8 41.0
I. Manual workersII. Manual and non-manual workers
Tax wedge and tax revenues, OECD countries, 2004
United KUSA
Turkey
Switzerland
Sweden
Spain
Slovak RPortugal
PolandNorway
NetherlandsLuxemburg
Japan
Italy
Ireland
HungaryGreece
GermanyFrance
FinlandDenmark
Czech R
Canada
Belgium
Austria
Australia
y = 0.3667x + 6.8394
R2 = 0.4262
0
5
10
15
20
25
30
35
0 10 20 30 40 50 60
Tax wedge, % of labor costs
Tax
rev
enu
es,
% o
f G
DP
Tax wedge combined with corruption and the tax revenues, OECD countries, 2000-2004
0
5
10
15
20
25
30
35
0 50 100 150 200 250 300 350 400
Tax wedge X Corruption
Ta
x r
ev
en
ue
s,
% o
f G
DP
Tax wedge combined with corruption and the tax revenues, OECD countries, 2000-2004
United KUSA
Turkey
Switzerland
Sweden
Spain
Slovak R
PortugalPoland
NorwayNetherlands
Luxemburg
Japan
Italy
Ireland
HungaryGreece
GermanyFranceFinland
Denmark
Czech R
Canada
Belgium
Austria
Australia
5
10
15
20
25
30
35
0 50 100 150 200 250 300 350 400
Tax wedge X Corruption
Tax
rev
enu
es,
% o
f G
DP
Regressions explaining the tax revenues, OECD countries
Dependent variable: Income tax revenues plus employee and employer contributions in % GDP
Explanatory variables [1] [2] [3]
TAX WEDGE 0.28 0.36 0.43[5.0] [7.32] [8.2]
CORRUPTION -0.96[-4.26]
TAX WEDGE* CORRUPTION -0.026[-4.64]
CONSTANS 9.8 9.83 7.41[4.67] [5.63] [4.38]
R2 within 0.07 0.07 0.06R2 between 0.44 0.73 0.76R2 overall 0.43 0.71 0.74Number of obs. 130 130 130Number of countries 27 27 27Method RE GLS RE GLS RE GLSTax wedge new new new
Share of the tax shortfall from the labor taxes, %Australia Austria Belgium Canada Czech Rep. Denmark Finland
2000 10.1 9.9 17.5 3.2 21.4 0.7 0.02001 7.2 9.1 14.8 4.2 23.9 1.7 0.42002 6.8 9.4 12.4 4.1 24.1 1.7 1.22003 6.0 8.7 10.4 5.3 25.7 1.7 1.22004 5.2 7.0 11.2 8.7 25.4 1.7 1.2
France Germany Greece Hungary Irland Italy Japan2000 15.6 11.4 29.2 31.0 11.4 25.0 13.62001 15.8 12.1 34.2 29.8 9.3 20.5 10.82002 17.9 13.2 34.0 32.1 11.4 21.4 14.62003 15.1 10.9 31.0 31.8 8.3 21.0 13.62004 14.4 9.4 33.1 33.6 8.7 23.5 14.0
Luxemburg Netherlands New Zealand Norway Poland Portugal Slovakia2000 5.5 4.4 1.8 4.0 36.3 18.3 41.92001 4.5 4.8 1.8 6.2 35.8 17.6 41.82002 3.2 4.0 1.5 6.3 37.9 47.02003 4.3 4.5 1.6 5.1 36.6 16.7 37.62004 5.4 5.6 4.8 39.0 18.3 36.7
Spain Sweden Switzerland Turkey USA UK2000 14.3 2.2 48.0 6.6 5.72001 14.1 3.7 46.5 7.1 7.02002 13.7 2.6 63.5 7.6 5.72003 15.2 2.7 4.2 61.8 8.3 5.92004 14.5 3.1 3.2 61.3 8.4 6.3
Tax wedge combined with corruption and the tax revenues, OECD countries, 2000-2004
0
5
10
15
20
25
30
35
40
45
0 50 100 150 200 250 300 350
Tax wedge X Corruption
Ta
x r
ev
en
ue
s,
% o
f G
DP
Tax wedge combined with corruption and tax revenues, OECD countries, 2004
United K
USATurkey
Switzerland
Sweden
SpainSlovak R
PortugalPoland
NorwayNetherlands
Luxemburg
Japan
Italy
Ireland
Hungary
Greece
Germany
France
FinlandDenmark
Czech R
Canada
Belgium
Austria
Australia
0
5
10
15
20
25
30
35
40
45
0 50 100 150 200 250 300 350
Tax wedge X Corruption
Tax
rev
en
ues
, %
of
GD
P
Regressions explaining the tax revenues, OECD countries 2000-2004Dependent variable: Income tax revenues plus social contributions plus consumer tax revenues, % of GDP
Explanatory variables [1] [2] [3] [4]
TAX WEDGE 0.15 0.35 0.45 0.37[1.15] [3.55] [7.76] [6.9]
VAT 0.32 0.38 0.33 0.43[4.9] [7.1] [3.41] [4.71]
CORRUPTION -1.15[-5.2]
TAX WEDGE*CORRUPTION -0.029 -0.028[-5.09] [-4.71]
CONSTANS 12.9 10.3 7.9 9.03[4.68] [5.34] [4.1] [4.71]
R2 within 0.04 0.04 0.03 0.007R2 between 0.59 0.86 0.86 0.86R2 overall 0.57 0.84 0.84 0.84Number of obs. 130 130 130 129Number of countries 27 27 27 27Method RE GLS RE GLS RE GLS RE GLSTax wedge new new new old
Share of the tax shortfall from the tax revenues (income, social contr., consumption)
Australia Austria Belgium Canada Czech Rep. Dania Finland2000 8.5 8.3 15.5 2.8 18.2 0.6 0.02001 6.1 7.8 13.3 3.7 20.4 1.4 0.32002 5.6 7.9 11.1 3.5 20.8 1.4 1.12003 5.0 7.4 9.5 4.5 22.1 1.4 1.02004 4.4 5.9 10.0 6.9 21.1 1.4 1.0
France Germany Greece Hungary Irland Italy Japan2000 13.4 10.0 22.2 22.5 8.3 21.9 13.22001 13.5 10.7 25.4 22.1 6.8 18.0 10.52002 15.4 11.6 25.4 24.4 7.9 18.8 14.02003 13.0 9.6 23.4 23.4 5.8 18.7 13.02004 12.3 8.2 24.7 23.6 6.2 20.9 13.4
Luxemburg Netherlands New Zealand Norway Poland Portugal Slovakia2000 4.5 3.7 1.2 3.1 28.7 13.7 30.72001 3.8 3.9 1.3 4.9 28.5 13.3 31.12002 2.6 3.3 1.1 5.0 29.6 33.12003 3.7 3.7 1.1 4.0 29.5 12.6 29.72004 4.5 4.6 3.8 30.1 13.9 27.0
Spain Sweden Switzerland Turkey USA UK2000 12.1 2.0 34.0 6.6 4.62001 12.1 3.2 34.1 7.1 5.72002 11.8 2.3 42.0 7.5 4.52003 12.9 2.3 3.9 41.2 8.1 4.72004 12.2 2.7 2.9 43.3 8.2 5.0
Shortfalls in tax revenues, % of GDP (2004)
0
1
2
3
4
5
6
7
8
9
Turke
y
Poland
Hunga
ry
Greec
e
Slovak
R Italy
Czech
R
Franc
e
Belgium
Portu
gal
Spain
Germ
any
Japa
n
Austri
aUSA
Nethe
rland
s
Irelan
d
United
K
Canad
a
Norway
Luxe
mbu
rg
Sweden
Austra
lia
Switzer
land
Denm
ark
Finlan
d
Sh
ort
fall
s i
n t
ax
re
ve
nu
es
, %
of
GD
P