Abstract
“Tax the rich, subsidise the poor” is deemed one of the typical finance characteristics of democracy and a solution in reducing income inequality. The Malaysian government has also adopted this strategy in its income redistribution policy. Evidently, this strategy can minimise the income gaps at the country level. However, it is doubtful if it can be effectively done at the individual level. The rich have to pay more while the poor can enjoy the ‘free’ income. Would that lead to financial satisfaction? Hence, the main objective of this study was to investigate the impact of individual perceptions on the government’s democratic act in implementing "tax the rich, subsidise the poor" policy for financial satisfaction among Malaysians. For an empirical analysis, this paper discusses the study conducted which used the sixth wave of the World Value Survey (WVS) data with 1290 respondents and is regressed by the ordered logit and ordered probit modelling. The results indicated that the democratic act of ‘taxing the rich and subsidising the poor’ in reality reduces financial satisfaction among Malaysians. In contrast, these same Malaysians wish for a larger income difference as an incentive for individual efforts. In view of this, the government and policy makers should make revisions to the current progressive taxation system or look for other alternative taxation systems which may be seen as fairer and can improve financial satisfaction among Malaysians at each income level.
Highlights
“Tax the rich, subsidise the poor” is deemed one of the typical finance characteristics of democracy and a solution in reducing income inequality
Column 1 in Table 4 are the results of ordered logit modelling while Column 2 shows the outcomes of ordered probit modelling on perceived financial satisfaction with five scales
To show the robustness of the results, the financial satisfaction was re-scaled into binary responses where 1 denoted that respondents were satisfied with their financial situation, 0 means otherwise
Summary
“Tax the rich, subsidise the poor” is deemed one of the typical finance characteristics of democracy and a solution in reducing income inequality. Some of the democratic countries such as Belgium, Sweden and Denmark have adopted progressive tax systems, where higherincome households will have to pay more taxes than the lower-income households (Oishi, Schimmack & Diener, 2012) This has caused the low and middle-income groups to live more contentedly and financially satisfied. The rich people have to pay higher taxes, while the poor can ‘enjoy’ the ‘free’ income through government subsidies This raises a research question - How does the democratic act of the Malaysian government in implementing ‘tax the rich, subsidise the poor’ policy affect the financial satisfaction of its citizens?. Relatively few empirical researches have focused on how to improve financial satisfaction, especially in the case of Malaysia
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