UNCTAD Trade and Development Report 2012

UNCTAD Trade and Development Report 2012

UNCTAD (United Nations Conference on Trade and Development) has just published a new study that is relevant for tax justice. The report argues that reducing inequality is central for growth and development. Among the issues they discuss are progressive taxation as a means of reducing inequalities and spurring economic growth.

The whole report and summary can be found here: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210

Interesting Excerpts

Firstly, they point out how progressive taxation is important for reducing inequality and spurring growth - especially in developing countries:

"Suitably designed reforms

of direct taxation can simultaneously achieve the goals of lowering income inequality and boosting growth of output and employment creation in developed and developing countries alike. The low degree of progressivity in developing and transition economies’ tax systems and the large differences between regions and countries in this regard suggest that in many of these countries there is considerable scope for tackling income inequality effectively through more progressive taxation." (p.132)

Secondly, they note with concern that the trend in tax reforms in developing and developed countries has been towards less progressive taxation:

"In many countries, market-friendly tax reforms reduced the tax-to-GDP ratio, lowered marginal tax rates and served to strengthen those elements of the public revenue system that had regressive effects on income distribution (i.e. elements which tended to increase income inequality). This new orientation also shaped fiscal policies in developing countries, where policy reforms in the 1980s and 1990s were strongly influenced by the conditionalities and recommendations of the international financial institutions"

(p.114)

Thirdly, the report also discusses the problem of tax avoidance by the rich and multinational companies and the role it plays in increasing inequality (while referencing a TJN study - underlined below):

"...in most of those

developing countries where income distribution is highly unequal, taxation is also regressive, and tax evasion by earners of non-wage incomes is widespread. This contributes to even greater inequality because richer people have greater opportunities and skills for evading taxes. According to estimates from Tax Justice Network (2011), tax evasion or avoidance reduces tax revenues by $3.1 trillion worldwide every year. Similarly, transfer pricing – which refers to the setting of prices in international transactions between associated enterprises within a TNC – enables the shifting of TNCs’ profits to low- or no-tax jurisdictions, and thus unfairly deprives a country of tax revenues" (p.120)

Lastly, this is from the conclusion of one of the chapters:

"In conclusion, a progressive income tax, income transfers of various kinds to low-income groups and improved access to education and skills acquisition may contribute to correcting inequality in the distribution of incomes. At the same time, these measures can support domestic demand and boost growth and employment creation in the economy as a whole." (p.135)

They do, however, also note some limitations on relying on progressive taxation and income transfers alone:

"However, there are limits to achieving greater equality in personal income distribution in this way.

A comprehensive policy approach to reversing the trend towards greater inequality will require a broader reorientation of economic policy that takes into account the dynamics linking productive investment, growth and income distribution, which are influenced by labour market and macroeconomic policies." (p.135)

The whole report and summary can be found here: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210