1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Enhancing the efficiency and equity of the tax system in Israel

Israel’s tax mix is reasonably growth- and employment-friendly. Nonetheless, tax reform is needed to foster an inclusive recovery from the COVID-19 crisis and help tackle Israel’s main economic and societal challenges of high poverty, including among those in work, and slow aggregate productivity growth. The earned income tax credit has been an effective tool to reduce poverty and increase employment among the low-skilled and could be further expanded. The business tax system provides large benefits that aim to incentivise companies to become more productive, but the existing design may create distortions. This preferential tax treatment should be reviewed with a view to better targeting the scheme to ensure net benefits to society. There is also scope to simplify the tax system by removing inefficient tax expenditures and better leverage Israel’s impressive technological capacity to further lower compliance costs and reduce tax evasion. Finally, excise taxes should be adjusted, including by taxing carbon more heavily, to improve environmental and health outcomes.

English

Keywords: tax avoidance, transfers, tax evasion, subsidies, business taxes, environmental taxation, taxes, Israel, personal income taxes, tax administration
JEL: H53: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Welfare Programs; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Policy; Provision and Effects of Welfare Programs; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; H26: Public Economics / Taxation, Subsidies, and Revenue / Tax Evasion and Avoidance
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