Effect of Tax Policy on Income Inequality in WAEMU Countries

The role of tax policy in lightening income inequalities, although relatively more analyzed in developed countries, remains one of the least debated subjects on developing countries. The goal of this paper is to analyze the relative effectiveness of different tax policy instruments in reducing inequalities in WAEMU countries. To do this, a VAR modeling in Panel is used. Our results show that direct taxes, personal income tax are more effective in reducing income inequality in WAEMU countries, whereas taxes on goods and services are less effective in reducing income inequality. Finally, the paper draws the necessary tax policy recommendations in order to improve the contribution of taxation in reducing income inequalities in WAEMU countries.