Garrett Watson, Alex Durante, Alex Muresianu
In December, scholars David Hope and Julian Limberg released a study with the London School of Economics (LSE) examining the economic effects of reducing tax rates for high-income individuals and corporations. The paper illustrates how overlooking an important element of the tax system the structure of the tax base can lead to an incomplete understanding of how tax reform impacts the economy.
The paper uses data from 18 countries in the Organisation for Economic Co-operation and Development (OECD) to measure how reducing taxes on higher-income earners would affect economic growth, income inequality, and unemployment. The authors found that the tax changes led to increased income inequality, but no significant effects on either economic growth or unemployment.