Symposium: tax equity around the world – introduction

Abstract

As inequality has risen around the world, the importance of tax design for achieving equity objectives has become increasingly widely discussed and is the focus of much recent public finance research. At the same time, globalisation and the increasing international mobility of capital have brought international and jurisdictional issues in tax policy to the fore for many countries and for the international community more generally.

This set of issues was showcased at the 4^th World Bank Tax Conference in September 2022, which focused on ‘Global Tax Equity’. The meeting was hosted by the World Bank and organised jointly by the World Bank, the Overseas Development Institute, the Institute for Fiscal Studies, the UK Foreign, Commonwealth and Development Office and UK Aid, and the Norwegian University of Life Sciences.1

The conference brought together leading researchers and policymakers to discuss the role of fiscal policy in dealing with the challenge of global inequality, both within countries and internationally, and how new data sources and research might inform such a debate. It featured discussions of recent research on making tax systems more equitable at a global scale, including the taxation of high-net-worth individuals, including wealth taxation; tax transparency, beneficial ownership, offshoring and tax havens; and taxes on multinationals and large corporations.

The set of perspectives papers in this symposium showcases some of the key policy questions and discussions from that meeting of academic researchers, tax and development practitioners and policymakers. In the paper entitled ‘Globalisation, taxation and inequality’, Gabriel Zucman summarises the arguments he presented in his keynote address to that conference. He discusses the way current tax systems heavily favour capital and capital income at the expense of labour, and argues this is not appropriate for our times. Whilst he welcomes some recent changes such as the advent of the global minimum tax, he also makes a number of further suggestions and recommendations for the future direction of national and international tax policy.

Three further short perspectives pieces then present brief commentaries and reactions to the points and issues raised by Zucman, predominantly from the perspective of tax policy in developing economies. The first is by Anne Brockmeyer and David Phillips who was the organiser of the policy session on global tax equity at the World Bank conference in which senior tax officials from Honduras, Indonesia and Argentina discussed specific issues with improving tax equity in their national contexts. Brockmeyer and Phillips discuss the specific proposals in the Zucman paper and suggest areas where more research is needed in order to establish the likely success or otherwise of such policies. They also pick up briefly on one of the points made by the Honduran tax officials in that policy session, since Honduras has sought to rationalise the incentives within its tax system in order to broaden the tax base, improve tax equity, and reduce the ways in which exemptions and concessions aimed at attracting foreign direct investment undermine the tax base.

Two further papers give reactions to the Zucman paper from the policymakers in Indonesia and Argentina who also contributed to the conference's policy session, each being co-authored with Vedanth Nair from the Centre for Tax Analysis in Developing Countries (TaxDev). These papers put a spotlight on a couple of the more specific and operational challenges with improving tax equity in developing countries and discuss the policy experiences with regard to this. The first of these, ‘Taxing high-net-worth individuals: experience from Indonesia’ by Vedanth Nair and Mekar Satria Utama, discusses the efforts Indonesia has made in curbing tax evasion and avoidance by the rich and relates these to the issues set out by Zucman. The Indonesian government opted to combine tax policy changes – an increased top tax rate – and tax administrative changes, by allocating high-net-worth individuals to specialised tax offices and introducing a temporary amnesty. Whilst initial evidence suggests that tax revenue has increased, the paper points out the need for a rigorous impact evaluation of the causal effect of the reform on tax revenues, reported wealth, income and real earnings, and the need to disentangle the effects of the tax policy changes from the effects of the administrative operational changes stemming from the new high-wealth tax offices and the temporary amnesty.

Following that, the article ‘Progressive taxation in the face of inflation and instability: lessons from Argentina’ by Roberto Arias and Vedanth Nair discusses the Argentinian experience of an annual wealth tax, which is one of the proposals put forward in the Zucman paper, to demonstrate that efforts to improve tax equity along the lines suggested by Zucman can be hampered by inflation and instability in low- and middle-income countries. While unanticipated inflation episodes have rendered the tax system less progressive, policy actions have recently been taken to retain progressivity – for example, by indexing bracket thresholds and fixing the share of the population liable for personal income tax. Picking up on one of the themes in the Zucman paper, Arias and Nair point out that Argentina has also embraced the recent progress in international tax cooperation and hopes to increase revenue collections as a result.

Taken together, these perspectives pieces demonstrate the extensive current interest in the area of global tax equity, whether defined nationally or internationally. They provide an overview of some of the motivating arguments for greater taxation of capital and more international coordination of capital taxes, and illustrate the need to include low- and middle-income countries in a discussion that could highlight the opportunities, but also some of the challenges to such arguments. The papers also provide a more specifically middle-income-country perspective on some of the issues raised in the recent Fiscal Studies symposium on the global minimum tax (volume 44, issue 1, published in March 2023) and the special issue on wealth taxes (volume 42, issues 3–4, published in October 2021). It is clear from these papers that this is a rich area of both policy reform and economic debate in developing economies, and one in which much more research could be highly valuable.