The Taxing Deed of Globalization

TLDR

This paper examines the effects of globalization on the distribution of worker‑specific labor taxes. It employs a unique set of tax calculators to analyze these effects. The study finds that before 1994 higher openness led to more progressive taxation for higher earners, but after 1994 globalization raised the labor tax burden for the middle class while reducing it for the top 1 percent by 0.59–1.45 percentage points. JEL codes: D31, F16, F61, H22, H24.

Abstract

This paper examines the effects of globalization on the distribution of worker-specific labor taxes using a unique set of tax calculators. We find a differential effect of higher trade and factor mobility on relative tax burdens in 1980–1993 versus 1994–2007 in the OECD. Prior to 1994, greater openness meant that higher income earners were taxed progressively more. However, after 1994, we document a globalization-induced rise in the labor income tax burden of the middle class, while the top 1 percent of workers and employees faced a reduction in their tax burden of 0.59–1.45 percentage points. (JEL D31, F16, F61, H22, H24)