Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit

  • Sheraz Rajput Department of Business Administration, Sukkur IBA University, Pakistan
  • Fiza Qureshi Institute of Business Administration, University of Sindh, Pakistan
  • Tariq Aziz Department of Business Administration, Sukkur IBA University, Pakistan
Keywords: demographic structure, aging population, taxes on income, profit and capital gains

Abstract

This study investigates the dynamic relationship between demography and direct taxes on income, profit, and capital gains. The data, for the period 1990–2017, encompass 89 OECD and non-OECD countries. The study employs generalized method of moments (GMM) estimation to identify the relationships. The findings suggest a U-shaped correlation in OECD countries, which supports the argument that a rise in the aging population initially decreases taxes on income, profit, and capital gains. Conversely, any further rise in the aging population after reaching a certain threshold leads to increased taxes on income, profit, and capital gains. Furthermore, across non-OECD countries, the findings suggest an inverted U-shaped relationship implying that the labor income tax rate will fall with a rise in the dependency ratio until the aged population constitutes half of all voters, but the correlation between these variables becomes positive if the number of aged people reaches 50% of voters or more. The findings lead to the suggestion that other potential factors, such as empathy among family members, as opposed to political muscle only may affect voters’ behavior in a median voter model.

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Published
2020-12-15
How to Cite
Rajput, S., Qureshi, F., & Aziz, T. (2020). Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit. Applied Economics Journal, 28(1), 1-17. Retrieved from https://so01.tci-thaijo.org/index.php/AEJ/article/view/243149
Section
Research Articles