Choosing a Broad Base - Low Rate Approach to Taxation
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.
Published on October 28, 2010
In series:OECD Tax Policy Studiesview more titles