Global tax policy drives fiscal revenues higher

Reform of tax policy has always been the focus of politicians especially as we near election cycles, but this focus generally is often not to create efficiencies nor increase revenues. Most tax policy changes are an attempt to redistribute income or to provide incentives for some policy objective. Evidence suggests that simple polices which provide good incentives for business to grow create increased revenue for the government.

The chart presented in the May OECD Economic Outlook takes a simple look at tax rates and revenues. It focuses on what should be the primary government issue, how much revenue rose for a given tax rate.

The chart shows a decline in the tax rate for most corporations across the globe. The expectation by many would be that lower tax rates will lead to lower revenues, but the interesting feature has been the increase in tax receipts. The revenue as a percentage of GDP has actually increased over the same period.

Lower rates and revenue increased, an interesting combination.