data remains a blunt instrument for examining progressivity. Indeed, the limitations exhibited in this section further illustrate the need for obtaining microdata to more precisely measure the progressivity of tax systems where possible.

# 5.1 Potential aggregate tax revenue-based metrics

The section draws on aggregate tax revenue data from the UNU-WIDER Government Revenue Dataset covering 68 of 74 countries currently eligible to receive IDA resources (59 IDA-only and 15 blend countries).<sup>26</sup> Three potential indicators are presented:

1. The ratio of direct tax revenue to indirect tax revenue;

2. The ratio of income tax (PIT + CIT) revenue to total tax revenue; and 3. The ratio of income tax (PIT + CIT) revenue to GDP.

The ratio of direct-to-indirect tax revenue is a commonly used aggregate metric, adopted on the basis that direct taxes can be expected to exhibit more progressivity than indirect taxes. The second and third indicators focus specifically on the PIT and CIT on the basis that these are likely to be the predominant sources of progressivity in tax systems. In the calculations, direct taxes are specified as PIT (including labor and capital income), CIT, and property taxes; while indirect taxes are specified as VAT, sales taxes, excise taxes and trade taxes.<sup>27</sup> For brevity, a detailed discussion of the tax incidence literature is not provided here. However, income taxes are considered a primary source of progressivity based on the inherently progressive design of most PIT systems, and, in the case of CIT, following the conventional view that capital owners bear the majority of the CIT (and given that capital income is disproportionately earned by high-income households).<sup>28</sup> In contrast, while empirical results can be mixed for indirect taxes, none are typically considered to achieve a significant degree of progressivity.<sup>29</sup> Property taxes, while included in the numerator for the first indicator, are excluded from the second and third for several reasons. First, because there remains significant debate in the literature regarding the extent to which recurrent property taxes exhibit features of a benefits tax (and hence are closer in nature to a payment for services thereby having no distributional impact) as opposed to a tax. Second, it avoids the inclusion of highly inefficient (but potentially progressive) property transaction taxes from having a

> 26 The UNU-WIDER dataset draws on data from several sources, primarily the IMF Government Finance Statistics and OECD Global Revenue Statistics databases. See: https://www.wider.unu.edu/about-grd.

> 27 The PIT and CIT categories include “taxes on income, profits and capital gains” of individuals and corporate entities, respectively.

> 28 As noted earlier, empirical evidence does suggest that at least some of the CIT may be borne by workers (in the form of lower wages), which would reduce the progressivity of the tax.

29 While the VAT was historically considered a regressive tax, more recent literature finds the VAT to be roughly proportional on a lifetime basis, and in some cases even sightly progressive (but with minimal redistributive impact) due to the application of reduced rates on consumption items that make up a greater proportion of the expenditure of poorer households such as basic food products (see, e.g., IFS 2011, Thomas, 2022), or due to informality (Bachas et al., 2020). Excise taxes are often found to be regressive, although this is not always the case (e.g., Flues and Thomas, 2015, find transport fuels in some OECD countries to have some progressive impact). Furthermore, beyond the pure fiscal impact, health and environmentally related excise taxes though eliciting behavioral changes can have broader progressive impacts.

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