Distributional considerations should only come into play to avoid extreme income inequality, which should be reduced mainly through expenditures (e.g. Engel, Galetovic and Raddatz, 1999). Although it was clear that the reduction of progressive taxation would increase inequality, there was little popular opposition to it in the developed countries, because the tax reforms, similar to labour market reforms, were widely believed to be the only way to restore growth and keep companies from relocating production abroad. Similarly, in developing countries, policies that provided extensive tax privileges to owners of capital, in particular to TNCs, were considered “socially acceptable” or “desirable” because they promoted foreign capital inflows. Note: Data refer to the five-year average of the mean observation of general government revenue, a Includes capital revenues.