Estimation of Latent Preference for Desirable Personal Income Tax Rate

Abstract

This study is interested in the degree of satisfaction of taxpayers for income tax rate, burden and hope for improvement. In special, it focuses on personal labor income tax. This study develops the model of ordered choice model that finds the determinants of household members for choosing the degree of desirable tax rate: 10%, 20%, and 30%, etc. This model estimates the marginal effects of explanatory variables on unobserved sentiment for optimal tax rate and tax burden of taxpayers.<BR> This study performed the estimation of several types of dependent variable models. Estimation of ordered probit results shows, the choice for desirable tax is not significant in the case of current annual income as explanatory variable. Ordered model is poreferable to ordinary LS(least squares), since dependent variable measure is not correct degree of sentiment. This study may help government that have been considering specific implementation of personal income tax such as single or couple income tax.