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.
Published on December 22, 2020
In series:OECD Economics Department Working Papersview more titles