World Income Distribution and Tax Reform: Do Low-Income Countries Need Direct Tax System?

Tax reform constitutes one of the core areas of recent economic reform programs in the developing countries. Utilizing new tax burden indexes, this paper argues that a flat or zero income tax creates pro-growth initiatives, reduces corruption and the size of informal sectors and generates over all institutional improvements in low income countries. Tax policy should also balance the growth effects from a flat or zero tax with broad-based consumption and innovative ecologically oriented taxes to ensure sustainability.