Tax policy analysis

Choosing a Broad Base - Low Rate Approach to Taxation

In series:OECD Tax Policy Studiesview more titles

Published on October 27, 2010

book

Many countries will likely face the need to increase tax revenues, as part of fiscal consolidation, during the next few years. But how is this best done? And what are the considerations when choosing between raising tax rates and broadening the tax base by scaling back or abolishing targeted tax provisions (such as allowances, exemptions and preferential rates)? This report aims to answer such questions by taking a close look at the economic and political factors that influence governments’ tax decisions. 

Although many countries have broadened their tax bases over the past 30 years, targeted tax provisions, notably tax expenditures, continue to be significant.  Like public expenditure, targeted tax reliefs mean that (other) tax rates need to be higher in order to finance these reliefs. This report therefore discusses whether such tax provisions continue to be worthwhile. It includes an annex covering country-specific revenue forgone estimates of tax expenditures for selected OECD countries.  

This report also identifies political factors, including the lobbying of influential interest groups, as the main obstacles to base-broadening reforms, and it considers how reforms can be best packaged and presented to overcome such obstacles.

TABLE OF CONTENTS

Foreword
Executive Summary
Introduction
Broad Base – Low Rate Approach: Scope and Limitations
Where is there Scope for Base-broadening?
Evaluating Tax Provisions: Some Examples
Base-broadening and Targeted Tax Provisions: Political and Distributional Considerations
Annex A. Revenue Forgone Estimates of Main Tax Expenditures in OECD Countries
Powered by OECD iLibrary