Abstract
The article examines analyze current features of personal income taxation, and also the relationship between income inequality, individual income taxes and several labor market indicators in Asia-Pacific countries. The income inequality issue affects basic social and economic terms as equity and equality. The increase in income inequality in countries worldwide led to vigorous debate about efficiency of progressive individual income taxation as a tool for achieving optimal level of social equity. The purpose of the study is to examine the features of progressive individual income taxation and its influence of reduction of income inequality in Asia-Pacific countries. The article analyzes current systems of personal income taxation in countries of this region and their relationship with key macroeconomic indicators. The methodology includes cross-country comparisons, principal component analysis, regression analysis. The main theoretical results include identification of causes of inefficiency of progressive individual income taxation in analyzed countries. The empirical results are related to the estimation of influence of macroeconomic factors, including labor market indicators, on individual income tax revenue. The applied methods, notably principal component analysis combined with regression analysis, can be used for estimation of influence of both quantitative and qualitative factors on tax revenue. HIGHLIGHTS 1. The tax theory suggests that the progressive individual income tax system can be an effective tool for reduction of income inequality 2. For developing Asia-Pacific countries, the progressive personal income tax systems cannot contribute to the reduction of inequality since the tax base is narrow because of high free-tax thresholds and large informal sector of the economy 3. The developed Asia-Pacific countries have relatively high personal income tax revenues and low Gini coefficients, except Singapore with high income inequality level and GDP per capita similar to developed countries. One of the main reasons of high inequality in this country are the features of government tax policy 4. In developing Asia-Pacific countries only statutory nominal gross monthly minimum wage has significant impact on individual income tax revenue, and this impact depends crucially on the GDP per capita; the main reason are high tax-free personal income thresholds in these countries FOR CITATION Belozyorov S. A., Sokolovska O. V. Personal income taxation and income inequality in Asia-Pacific: a cross-country analysis. Journal of Tax Reform , 2018, vol. 4, no. 3, pp. 236–249. DOI: 10.15826/jtr.2018.4.3.054 ARTICLE INFO Received July 17, 2018; accepted August 20, 2018
Highlights
MOST CONTEMPORARY WRITERS on income size distribution are concerned with measuring the degree of inequality. It is the contentioll of this paper that the line of absolute equality cannot serve as a base for an operational measure of income inequality; no 'natural' income distribution or unambiguous or generally acceptable 'normative' distribution has been developed that could take its place; and the problem really is to identify, isolate, and measure the various factors that determine relative income positions, not to 'measure' inequality
Lorenz assumes perfect equality and Gini perfect inequality as the frame of reference.l in Changes in Income Distribution during the Great Depression (NDER, 1946) Horst Mendershausen stated: "measures of income inequality are expected to show how far distribution of income deviates from perfect equaUty, i.e., a state of affairs where all incomes are of the same size"
Even by referring to det~rminants of income distribution Kuznets clearly had in mind such factors as sources of income, n~ber ~f income recipients by family, etc., not the basic causes of income mequahty among individuals
Summary
In preparing this paper the author was ably assisted by Miss Alma Schuhnwcher. MOST CONTEMPORARY WRITERS on income size distribution are concerned with measuring the degree of inequality. One would be to set a standard of the socially desirable minimum degree of inequality and to measure empirical income distributions with reference to it This was suggested as early as 1917 by Allyn A. A standard of a socially desirable or justifiable degree of inequality may, for instance, be derived from principles of welfare economics; many other approaches can yield definite 'ideal' income distributions retIecting given sets of economic, political, or ethical principles. This normative approach implies investigating the determinants of inequality and rationalizing the size distribution of income in modem society - an issue that classical and neo-classical economic theory has been singularly reluctant to face. His analysis runs in terms of sources of income and stresses the incentive character of wages and unincorporated business profits and the mutually supporting relationship between inequality of income and of investment ownership
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