Applied Economics Letters

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Income inequality and taxes – an empirical

assessment

Ulrich Eydam & Hannes Qualo

To cite this article: Ulrich Eydam & Hannes Qualo (10 May 2023): Income inequality and taxes –
an empirical assessment, Applied Economics Letters, DOI: 10.1080/13504851.2023.2208328

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APPLIED ECONOMICS LETTERS
https://doi.org/10.1080/13504851.2023.2208328

ARTICLE

Income inequality and taxes – an empirical assessment

Ulrich Eydam and Hannes Qualo
Faculty of Economics and Social Sciences, University of Potsdam, Potsdam, Germany

ABSTRACT KEYWORDS
Economic literature offers several distinct explanations for the raising income inequality observed in Income inequality; tax
several countries. In the debate about the causes of inequality a growing strand of research focuses progressivity; personal
on the effects of taxation on income inequality. We contribute to this literature by providing income taxation;
instrumental variables
a systematic empirical account of the relationship between income inequality and personal income
taxation (PIT) for a set of countries over the period 1981–2005. In order to take alternative explana­ JEL CLASSIFICATION
tions into account and to isolate the effects of tax progressivity, we include a wide range of control C26; D63; H2; H24
variables. We address potential reverse causality between inequality and PIT by using the variation in
tax schedules of neighbouring countries. Our results confirm a statistically significant negative
association between the progressivity of PIT and income inequality. Overall, we find that especially
the average and the marginal tax rate have the potential to reduce income inequality. This finding is
qualitatively robust across various different empirical specifications.

I. Introduction
The development of income inequality over the past
decades has attracted considerable attention in the
public debate and spurred a surge in research trying
to understand the causes of inequality (cf. Piketty
and Saez (2003); Barro (2000); Rubolino and
Waldenström (2020)). Much of the literature
addresses the macroeconomic implications of high
inequality, including a potential increase in financial
fragility (cf. Kumhof, Rancière, and Winant (2015)),
political instability (cf. Persson and Tabellini
(1994)), and a slowdown of economic growth (cf.
Claessens and Perotti (2007)). In an empirical over­
view on the macroeconomic determinants of
inequality Dabla-Norris et al. (2015) highlight sev­
eral potential determinants of inequality: technolo­
gical change, trade globalization, financial
liberalization, and changes in labour market institu­
tions. Besides these factors, taxation and specifically
the design of tax systems, i.e. number of tax brackets
and the degree of progressivity, are identified as
major determinants of inequality (cf. Roine,
Vlachos, and Waldenström (2009); Arnold (2008)).
However, there is relatively little knowledge on the
importance of taxation relative to other macroeco­
nomic drivers of inequality. This is surprising, given
the contrasting movement of rising income inequal­
ity and decreasing income tax rates over the last
decades (cf. Peter, Buttrick, and Duncan (2010)).
By examining the long-run relationship between
income inequality and personal income taxation
(PIT) in a cross-country setting, this study contri­
butes to the literature on the macroeconomic dri­
vers of inequality. The focus is on the role of the tax
system, i.e. top tax rates and tax progressivity, on
income inequality. Placing inequality in
a macroeconomic framework allows us not only
to examine the relationship between income
inequality and income taxation, but also to control
for correlations between income inequality and
macroeconomic indicators.
Our results confirm a statistically significant
negative effect of average and marginal tax rates
on income inequality. In the baseline analysis a one
percentage point increase in the average tax rate is
associated with a decline in the Gini coefficient of
0.73 points. The marginal tax has a similar effect of
0.66. We also observe a negative relationship
between tax progressivity and income inequality.
There is also evidence of a significant negative
association between GDP growth and income

CONTACT Hannes Qualo hannes.qualo@uni-potsdam.de Faculty of Economics and Social Sciences, University of Potsdam, August-Bebel-Straße 89,
Potsdam 14482, Germany
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted
Manuscript in a repository by the author(s) or with their consent.
2 U. EYDAM AND H. QUALO

inequality, supporting a Kuznets curve relation­
ship. Given the ongoing academic and public
debate, these results help to identify the key deter­
minants and their respective effects on income
inequality, providing policymakers with more
information on the effectiveness of tax reforms to
address inequality.
II. Data and estimation
In our empirical analysis we use the Gini coeffi­
cient of net disposable income, the income share of
the bottom 40%, and the ratio of the relative
income of the top 20% to the income of the bottom
20% (20/20 ratio) as measures for income inequal­
ity. All series are obtained from the World Income
Inequality database (WIID). To measure income
taxation, we use the top tax rate (the highest pos­
sible statutory personal income tax rate), average
income tax rates, average marginal tax rates, and
the rate of change in the average tax rate. The last
measure follows Musgrave and Thin (1948) and
explicitly captures the degree of progressivity of
a tax system. All tax indicators stem from the
AYS World Tax Indicators database. A detailed
explanation of the indicators is given by Peter,
Buttrick, and Duncan (2010).
To capture confounding macroeconomic fac­
tors, we include several variables. The logarithm
of real GDP in 1981 and the average growth rate
of per capita GDP between 1981 and 2005 control
for the relationship between economic develop­
ment and inequality. As explained by Milanovic
and Yitzhaki (2002), it is important to consider
the income level of countries when assessing
income inequality. The ratio of government spend­
ing to GDP captures effects of redistribution.1 The
sum of imports and exports over GDP serves as
indicator of globalization.2 All data were obtained
from the World Bank. In a robustness check, we
include the share of credit provided to the private
sector relative to GDP to account for differences in
financial deepening and the index from Chinn and
Ito (2006) to account for financial liberalization.
Furthermore, there is the concern about the
direction of causality (cf. Rubolino and
Waldenström (2020)). High-income inequality
might induce pressure on policymakers to imple­
ment a more progressive tax system. To overcome
this endogeneity problem, we follow the approach
ofDuncan and Sabirianova Peter (2016)and use the
averages of neighbouring countries taxation mea­
sures as instrumental variables (IV). The assump­
tions behind this are that, due to tax competition,
the tax design of neighbouring countries affects
a country’s taxation system, but has no effect on
the observed income inequality within that country
due to low labour mobility. To construct these
measures, we use geographical data obtained from
the CEPII GeoDist database.
Our data set covers 61 countries between 1981
and 2005. Table 1 shows that the Gini has on
average increased by 1.6% points over the sample
period. The other inequality measures largely con­
firm this impression. Table 1 also reveals the het­
erogeneity between countries. The data set contains
high and low inequality countries. Moreover,
income inequality declined in some countries
between 1981 and 2005, while it increased in
others. The broad trend of increasing income
inequality is accompanied by a decrease in income
taxation. Looking at the change in the average rate
of progression, we find that the progressivity of the
entire tax system has decreased on average within
the sample. Overall, we observe marked variations
across countries with regards to tax progressivity.3
The scatter plots in Figure 1 provide a first
impression of the relationship between inequality
and PIT characteristics.4 In line with economic
intuition, all tax indicators show a negative correla­
tion with the Gini coefficient. This relationship is
particularly strong for average and marginal tax
rates.
The descriptive statistics and plots support the
intuition of a negative association between

1
To further assess the role of social transfers for inequality, we include the ratio of social spending to GDP. Results are shown in table 4 in Appendix B. Since data
from the World Bank ASPIRE database are only available from 1995 onwards and do not cover all countries, we only use them for robustness checks.
2
We follow Milanovic (2005) in not using GDP in purchasing power parity to determine the impact of trade openness on inequality.
3
The minimum average income tax rate of zero in Table 1 is due to the basis of assessment. From the time series of China for example it can be seen that during
the 80s and 90s the average income was below the taxation threshold, i.e. the average income tax was zero.
4
The outliers in Figure 1 are due to the tax base, as explained in footnote 2. Furthermore, in some countries the average (marginal) tax rate is the sum of
a national and a local tax. Thus, the average (marginal) tax rate is higher than the average top tax rate. Removing these outliers does not change the results.
 APPLIED ECONOMICS LETTERS 3

Table 1. Summary statistics, changes are in parentheses.

(1) (2) (3) (4) (5)
Variables Mean S.D. Min Max Obs.
Gini (Δ) 40.18 (1.588) 12.15 (3.843) 22.98 (−7.850) 72 (10.13) 61
20/20 Ratio (Δ) 10.63 (0.929) 8.722 (7.723) 3.352 (−9.210) 46.49 (55.37) 57
Bottom 40 (Δ) 17.09 (−0.635) 5.338 (1.871) 6.160 (−5.440) 25.14 (3.930) 57
Top Tax Rate (Δ) 40.88 (−20.19) 10.21 (13.06) 11.50 (−47) 62.75 (20) 61
Avg. Tax Rate (Δ) 11.71 (−5.383) 10.11 (8.555) 0 (−43.26) 39.92 (6.277) 58
Marginal Tax Rate (Δ) 18.74 (−7.050) 15.04 (13.20) 0 (−73.00) 52.29 (10.30) 58
Avg. Progression (Δ) 0.0505 (−0.0107) 0.0332 (0.0242) 0.000518 (−0.0763) 0.106 (0.0370) 58
GDP Growth 2.294 2.202 −3.300 8.639 61
Globalization 76.23 50.07 20.18 343.0 61
Gov. Spending 17.10 4.811 6.548 25.68 61
80

70
60
60
Average Gini

50
40

40
20

30
20
0

0 10 20 30 40 0 .02 .04 .06 .08 .1

Average Income Tax Rate Average Progessivity
80
70
40 50 60

60
Average Gini

40
20
30
20

10 20 30 40 50 60 0 10 20 30 40 50
Average Top Tax Rate Average Marginal Tax Rate

Figure 1. Scatter plots of the average Gini coefficient against the averages of tax indicators.

inequality and taxation. However, the presence of
confounding factors and the endogeneity between
income inequality and taxation imply that these
results should be interpreted with caution. As dis­
cussed above, income inequality is influenced by
various factors, so neglecting the impact of other
relevant aspects will affect the observed relation­
ship. To account for this, we conduct a multivariate
regression analysis and estimate the following
model:
Yi ¼ β0 þ β1 Xi þ β2 Zi þ εi :
The subscript i indicates the country. The measure
of income inequality is the dependent variable
denoted by Y. The taxation indicators are
represented by X, the vector Z represents the set
of control variables, and ε denotes the error term.
In the corresponding IV regressions we employ
a two-stage least squares estimation procedure.
The regression results with the Gini coefficient
as the dependent variable are shown in Table 2.
According to the adjusted R-squared, the set of
explanatory variables explains a satisfactory pro­
portion of the observed variation in income
inequality in all specifications. From column (1)
we can infer that the average income tax rate has
(1)
a statistically significant negative association with
the Gini coefficient, i.e. countries with a higher
average income tax rate display a lower degree of
income inequality. On average a one percentage
4 U. EYDAM AND H. QUALO

Table 2. Results for the Gini coefficient as dependent variable. (1)-(4) OLS and (5)-(8) IV regression. Standard errors are generated by
bootstrapping with 2000 replications.
(1) (2) (3) (4) (5) (6) (7) (8)
Variables Gini Gini Gini Gini Gini Gini Gini Gini
Constant 63.02*** 63.69*** 99.95*** 47.81*** 18.27 −47.82 121.2 −15.29
(9.462) (13.61) (7.522) (10.04) (30.91) (1,595) (471.7) (30.70)
Avg. Tax Rate −0.725*** −1.713***
(0.187) (0.610)
Avg. Rate Progression −192.9*** −896.6
(67.26) (11,579)
Top Tax Rate −0.0994 −0.794
(0.0859) (20.80)
Marginal Tax Rate −0.660*** −1.511***
(0.135) (0.415)
GDP Growth −1.369*** −1.625*** −1.865*** −1.247*** −0.291 −0.777 −1.673 −0.131
(0.472) (0.546) (0.588) (0.413) (1.117) (13.64) (16.26) (0.950)
GDP Level −1.532 −0.968 −5.502*** 0.382 3.900 14.28 −4.724 8.051**
(1.196) (1.823) (1.311) (1.197) (3.696) (245.2) (36.17) (3.921)
Globalization 0.0140 0.00744 0.00902 0.0188 0.0712 0.0335 −0.0183 0.103*
(0.0208) (0.0263) (0.0281) (0.0208) (0.0538) (2.346) (0.542) (0.0616)
Gov. Spending −0.0222 −0.194 −0.442 0.144 0.343 0.890 −0.305 0.641
(0.334) (0.354) (0.312) (0.324) (0.585) (16.35) (4.981) (0.490)
Observations 58 58 61 58 48 48 51 48
R-squared 0.658 0.587 0.543 0.702 0.480 −0.308 0.144 0.469
Standard Errors 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep.
Cragg-Donald Wald F statistic 24.26 5.811 5.453 18.24
Note: Standard errors in parentheses.
***p<0.01, **p<0.05, *p<0.1.

point increase in the average income tax rate is
associated with a 0.73 points lower Gini coefficient.
Column (2) presents the results for the average rate
of progression. Again, we observe a statistically
significant negative relationship vis-à-vis the Gini
coefficient. Countries with more progressive
income taxation schemes tend to have lower
income inequality. According to the point estimate
the change of the average rate of progression over
the course of the sample period accounts for an
increase in the Gini of about 2.1% points. The
results presented in column (3) and (4) reveal that
the top tax rate has no statistically significant asso­
ciation with income inequality, but the marginal
tax rate does. An increase in the marginal tax rate
by one percentage point is associated on average
with a reduction in the Gini by about 0.66% points.
Furthermore, we find that a higher GDP growth
rate is on average associated with lower income
inequality. This is suggestive evidence for
a Kuznets curve-like relationship between GDP
and inequality, i.e. economic growth tends to be
associated with declining inequality.
In columns (5) to (8) of Table 2 the tax
indicators are replaced with the respective IV.
Again, the average and marginal tax rates dis­
play a statistically significant negative associa­
tion with the Gini coefficient. However, the
average rate of progression is no longer statisti­
cally significant. As before, the top tax rate is
not statistically significant. This confirms that
the level of the average tax and the slope of
the tax schedule are particularly important for
income inequality, compared to the progressiv­
ity of the tax system, i.e. the change of the slope
along the income distribution.
Table B1 in Appendix B shows the results of
a robustness analysis in which we include addi­
tional control variables. Compared to the base­
line specification in Table 2, the results hardly
change. Within the sample, financial deepening,
financial liberalization, and debt-to-GDP ratios
show no statistically significant relationship with
income inequality. Regardless of the tax indica­
tor, however, social spending shows
a statistically significant negative relationship
with income inequality. This suggests that the
specific type of government spending matters
and that redistributive measures are particularly
important for inequality. We also perform the
analysis for the alternative inequality measures.
The results in Table B2 and Table B3 in
Appendix B broadly confirm the documented
relationship between PIT and inequality. The
same applies to the above-mentioned Kuznets
curve relationship.

III. Conclusion
This paper provides an empirical analysis of the
long-run relationship between income inequality
and income taxation in a macroeconomic con­
text. Overall, we observe a negative association
between characteristics of income taxation and
income inequality i.e. an increase in tax rates or
tax progressivity is associated with lower income
inequality. This result holds for different mea­
sures of taxation, different measures of inequal­
ity and is robust to the inclusion of different
control variables. Looking at macroeconomic
indicators, we find evidence of a negative rela­
tionship between GDP growth and inequality,
implying that economies experience a decline
in income equality over the development pro­
cess. This supports the idea of the Kuznets
curve.
However, given the possible reverse causality
between income taxation and income inequality,
it is important to stress that the above results
should not be interpreted as evidence of a causal
relationship. We address this issue by running
instrumental variable regressions using the aver­
age values of specific tax measures of neighbour­
ing countries as instruments for domestic
taxation. The results of this analysis confirm
a statistically significant negative effect of average
and marginal tax rates on income inequality.
Overall, the results suggest that certain features
of the tax system are directly related to income
inequality. Thus, despite the influence of global
macroeconomic factors, the design of the domes­
tic tax system is an important determinant of
inequality.
Acknowledgements
We thank Maik Heinemann, Georg Stadtmann, Alexander
Kriwoluzky, Tobias König, Magnus Sass and many fellow
PhD students from the Berlin School of Economics for
useful discussions and comments. We also thank the
participants of the 39th EBES conference and the partici­
pants of Research Factory seminar. The authors have no
competing financial or nonfinancial interest do declare.
Disclosure statement
No potential conflict of interest was reported by the authors.
APPLIED ECONOMICS LETTERS 5
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6 U. EYDAM AND H. QUALO

Appendix
Appendix A. Data Sources
The tax indicators stem from the AYS Word Tax database. This database offers the advantage of comprehensive coverage, as it
includes not only OECD and non-OECD countries, but also other geographic regions (Europe, the Americas, Africa, and Asia),
which allows for the inclusion of low-, middle-, and high-income countries in the analysis. Another advantage of the AYS tax data
is that they take into account the full range of income distribution by using a country’s GDP per capita (and multiples thereof) as
the income base for calculating the various income tax measures. This not only allows for comparability across countries, but also
overcomes the reliance on income distribution data. The AYS dataset covers the period from 1981 to 2005.
The data on Gini coefficients are taken from the WIID database. Since the WIID database covers a large number of countries
and collects data from various sources, certain criteria are applied in this paper to ensure good data quality, comparability and
comprehensive coverage. Net income per capita is chosen as the source of income and thus the basis for calculating the Gini
coefficient. To increase the number of observations, equivalized net income is chosen, if per capita net income is not available.
Finally, to ensure good data quality, only values of 11 or higher on the WIID quality score are used. For example, most of the Gini
data comes from the Luxembourg Income Study (LIS) and Eurostat, both of which have the highest quality score of 13. Other
sources include the United Nations and SEDLAC (especially for Latin American countries).
The control variables are taken from the sources mentioned in Table A1. Except for a log transformation of real GDP level in
1981 no further transformation is applied to the control variables.

Table A1. Data description and sources.

Variable Description Source
Gini coefficient Gini coefficient of the disposable income distribution (equivalized) WIID
90/10-ratio Income ratio of bottom 90% over top 10% of the income distribution WIID
20/20-ratio Income ratio of top 20% over bottom 20% of the income distribution WIID
Avg. Tax Rate Average tax rate on the average personal income (equivalent to country’s per capita GDP in local AYS World Tax
currency) Indicators
Top Tax Rate Top personal income tax rate AYS World Tax
Indicators
Avg. Progression Average rate progression up to an income level equivalent to four times the average personal income AYS World Tax
Indicators
Marginal Tax Rate Marginal tax rate on the average personal income (equivalent to country’s per capita GDP in local AYS World Tax
currency) Indicators
Real GDP per capita Gross domestic product per capita constant US-$ (2015) World Bank
GDP growth per capita Annual percentage growth rate of GDP per capita World Bank
Trade share (% GDP) Imports and Exports as share of GDP World Bank
Credit to private sector (% Domestic credit provided by the financial sector as share of GDP World Bank
GDP)
Gov. consumption (% GDP) Government expenditures as share of GDP World Bank
Social Spending (% GDP) Social spending as share of GDP World Bank (ASPIRE)
Financial Liberalization Index measuring a country’s degree of capital account openness Chinn and Ito (2006)
IVs for Taxation Measures For the different measures, we compute the averages over all neighbouring countries based on CEPII GeoDist
geographical distance. database
 APPLIED ECONOMICS LETTERS 7

Appendix B. Alternative Inequality Measures

Table B1. Cross sectional regression alternative specifications/controls, average tax indicators.
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Variables Gini Gini Gini Gini Gini Gini Gini Gini Gini Gini Gini Gini
Constant 50.69*** 51.70*** 47.98*** 44.24*** 71.33*** 68.11*** 102.8*** 52.32*** 54.97** 63.17*** 61.47*** 48.36**
(14.15) (14.22) (15.04) (15.30) (10.67) (13.25) (11.28) (10.79) (22.90) (21.33) (21.76) (23.61)
Avg. Tax Rate −0.181 −0.770*** −0.293
(0.191) (0.204) (0.237)
Avg. Rate
Progression −50.77 −228.8*** −57.92
(79.98) (85.74) (83.00)
Top Tax Rate 0.140* −0.0766 0.0884
(0.0757) (0.0999) (0.0842)
Marginal Tax −0.204 −0.717*** −0.269
Rate
(0.204) (0.138) (0.186)
GDP Growth −0.608 −0.936 −0.680 −0.549 −1.983* −2.823*** −2.865*** −1.864** 1.257 0.699 1.170 1.092
(0.761) (0.752) (0.801) (0.748) (1.024) (1.028) (1.100) (0.868) (0.928) (1.112) (0.890) (0.984)
GDP Level 0.0895 0.268 −0.108 0.873 −2.935* −1.895 −5.993*** −0.472 −0.0320 −0.614 −1.030 0.742
(1.615) (1.773) (1.631) (1.779) (1.531) (1.848) (2.095) (1.474) (2.193) (2.214) (1.720) (2.302)
Globalization −0.0162 −0.0184 −0.0241 −0.00695 0.0266 0.0381 0.0443 0.0260 −0.0338 −0.0412 −0.0589** −0.0219
(0.0314) (0.0324) (0.0264) (0.0361) (0.0316) (0.0362) (0.0413) (0.0295) (0.0305) (0.0324) (0.0261) (0.0368)
Social −0.720*** −0.783*** −0.943*** −0.652***
Spending
(0.197) (0.189) (0.203) (0.248)
Gov. 0.205 0.238 −0.198 0.417 −1.055** −1.160*** −1.246*** −0.964**
Spending
(0.354) (0.485) (0.439) (0.337) (0.439) (0.413) (0.395) (0.484)
Financial
Deepening −0.00642 0.0570 0.00978 0.00759
(0.0507) (0.0552) (0.0559) (0.0448)
Financial
Liberalization 2.275 −7.311 −7.304 0.0429
(7.936) (7.491) (8.341) (6.555)
Debt/GDP 0.0416 0.0424 0.0268 0.0418
(0.0369) (0.0375) (0.0368) (0.0391)
Observations 35 35 35 35 45 45 45 45 32 32 32 32
R-squared 0.606 0.600 0.635 0.616 0.743 0.700 0.622 0.795 0.607 0.563 0.568 0.611
Standard 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 2000 Rep. 2000 Rep. 2000
Errors Rep. Rep.
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.
8 U. EYDAM AND H. QUALO

Table B2. Results for income share of bottom 40 as dependent variable. (1)-(4) OLS and (5)-(8) IV regression. Standard errors are
generated by bootstrapping with 2000 replications.
(1) (2) (3) (4) (5) (6) (7) (8)
Variables Bottom 40 Bottom 40 Bottom 40 Bottom 40 Bottom 40 Bottom 40 Bottom 40 Bottom 40
Constant 2.412 4.882 −11.87*** 8.448 26.86 50.46 −21.12 43.73
(4.952) (5.834) (3.456) (5.307) (68.47) (154.4) (135.8) (481.8)
Avg. Tax Rate 0.241*** 0.756
(0.0804) (1.460)
Avg. Rate Progression 81.34*** 362.2
(25.91) (1,009)
Top Tax Rate 0.0475 0.369
(0.0385) (3.807)
Marginal Tax Rate 0.232*** 0.703
(0.0575) (5.513)
GDP Growth 0.549** 0.651*** 0.853*** 0.485** −0.232 0.0367 0.670 −0.330
(0.221) (0.209) (0.189) (0.199) (2.108) (6.771) (9.287) (3.037)
GDP Level 0.929 0.335 2.451*** 0.195 −1.948 −5.779 2.000 −3.924
(0.595) (0.770) (0.527) (0.616) (8.227) (20.92) (3.963) (52.78)
Globalization −0.00358 −0.00237 −0.00646 −0.00505 −0.0198 −0.00977 0.00219 −0.0375
(0.0105) (0.0112) (0.0115) (0.00996) (0.0717) (0.137) (0.0923) (0.576)
Gov. Spending 0.204 0.247** 0.323*** 0.123 −0.0568 −0.203 0.302 −0.263
(0.136) (0.125) (0.112) (0.143) (0.613) (0.930) (1.091) (6.434)
Observations 54 54 57 54 45 45 48 45
R-squared 0.701 0.697 0.649 0.734 0.475 −0.088 0.196 0.398
Standard Errors 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep.
Cragg-Donald Wald F statistic 15.96 8.206 5.247 13.41
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.

Table B3. Results for 20/20 ratio as dependent variable. (1)-(4) OLS and (5)-(8) IV regression. Standard errors are generated by
bootstrapping with 2000 replications.
(1) (2) (3) (4) (5) (6) (7) (8)
Variables 20/20 Ratio 20/20 Ratio 20/20 Ratio 20/20 Ratio 20/20 Ratio 20/20 Ratio 20/20 Ratio 20/20 Ratio
Constant 34.86*** 30.21*** 56.90*** 28.46*** 2.469 −27.24 69.66 −18.91
(7.424) (9.109) (8.567) (8.423) (87.75) (158.4) (236.6) (706.7)
Avg. Tax Rate −0.243** −0.928
(0.102) (1.890)
Avg. Rate Progression −96.12*** −449.0
(35.86) (1,036)
Top Tax Rate −0.129* −0.577
(0.0700) (6.379)
Marginal Tax Rate −0.239*** −0.872
(0.0793) (8.086)
GDP Growth −1.446*** −1.527*** −1.795*** −1.376*** −0.460 −0.782 −1.624 −0.327
(0.387) (0.387) (0.375) (0.380) (2.615) (6.931) (15.27) (4.445)
GDP Level −2.221** −1.329 −4.535*** −1.444 1.588 6.387 −3.905 4.090
(0.879) (1.151) (1.418) (0.979) (10.34) (21.48) (5.850) (77.42)
Globalization 0.0166 0.0153 0.0266 0.0181 0.0487 0.0366 0.0360 0.0710
(0.0140) (0.0131) (0.0229) (0.0139) (0.100) (0.142) (0.134) (0.845)
Gov. Spending −0.0922 −0.110 −0.105 −0.00612 0.214 0.401 −0.151 0.476
(0.157) (0.149) (0.253) (0.168) (0.941) (0.970) (1.803) (9.438)
Observations 54 54 57 54 45 45 48 45
R-squared 0.642 0.652 0.592 0.661 0.421 −0.011 0.258 0.350
Standard Errors 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep. 2000 Rep.
Cragg-Donald Wald F statistic 15.96 8.206 5.247 13.41
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.