Effects Of Personal Income Tax Research Articles

Economic Growth Effects of Fiscal Policy in South Africa: Empirical Evidence from Personal Income Tax

Economic Growth Effects of Fiscal Policy in South Africa: Empirical Evidence from Personal Income Tax

Personal Tax Changes and Financial Well-being: Evidence from the Tax Cuts and Jobs Act

We estimate the effects of personal income tax decreases on financial well-being, including qualitative subjective assessments and quantitative measures. A plausibly causal design shows that tax decreases in the Tax Cuts and Jobs Act made survey respondents more likely to say they were "living comfortably" financially, with null effects at lower levels of subjective financial well-being. Estimates from a similar design using credit bureau data show that people who had larger tax decreases were modestly more likely to open new accounts, and more likely to have higher consumer credit balances. Tax decreases had effects on credit scores that are indistinguishable from zero. Results suggest that larger tax decreases improve financial well-being in ways not fully proxied by typical administrative data.

The effect of fiscal drag on income distribution and work incentives: A microsimulation analysis on selected African countries

AbstractAlthough the effect of fiscal drag is well‐studied in the industrialised world, empirical evidence from developing economies remains limited. Against this backdrop, this study aims to explore the effect of fiscal drag on income distribution and work incentives. To this end, the study employs SOUTHMOD, the tax‐benefit microsimulation model, for six African countries: Ethiopia, South Africa, Tanzania, Uganda, Mozambique, and Zambia. Three important conclusions are drawn from our empirical investigation. First, in the absence of proper tax parameter adjustment, the distribution of fiscal drag is determined by the liability progression of personal income tax in the pre‐inflation period. Second, the impact of fiscal drag on the redistributive effects and progressivity of personal income taxes is differentiated among countries. On the one hand, it reduces the progressivity of personal income tax in Ethiopia, South Africa, Tanzania, Uganda, and Zambia; on the other hand, it improves progressivity in Mozambique. However, it decreases the redistributive effect of personal income tax only in Ethiopia, Tanzania, and Uganda. Third, fiscal drag reduces financial work incentives to increase earnings in all countries. Addressing fiscal drag becomes very crucial considering the soaring inflation due to the war between Ukraine and Russia.

Personal income tax, redistribution and income inequality in Sub-Saharan Africa

We assess the roles of personal income tax and fiscal redistribution in income inequality for 30 Sub-Saharan Africa economies from 1980 to 2020, employing the dynamic common correlated effect and cross-sectional augmented autoregressive distributed lag estimators. Empirical results show that personal income tax positively affects income inequality in the full sample SSA economies. Compared to the full sample, the magnitude of the effect remains positive but smaller for non-least developed countries (countries not classified as least developed countries in our sample). However, personal income tax has a negative effect on income inequality for least developed countries. Additionally, fiscal redistribution increases inequality in Sub-Saharan Africa economies and non-least developed countries, while it lowers inequality for least developed countries. Interestingly, fiscal redistribution reduces the level of the positive impact of personal income tax on inequality over the full sample. The main policy implication of this research is that well-designed redistributive fiscal measures associated with anti-corruption policy and good governance may help policymakers to reduce the positive effect of personal income tax on inequality in Sub-Saharan Africa economies.

Роль стимулирующих эффектов НДФЛ в реализации национальных проектов

The subject of the study is the tax tools used to facilitate the implementation of the tasks of national projects. The purpose of the work is to assess the stimulating effects of personal income tax in the context of the implementation of national projects. The article considers national projects that are part of the "Human Capital" block and are of a social nature. The potential opportunities have been identified and the real results of using the stimulating effects of personal income tax to help achieve the targets of the national projects "Healthcare", "Education" and "Demography" have been revealed. The conclusion is made about ensuring greater efficiency in achieving the targets of national projects of direct budgetary mechanisms against indirect tax instruments. At the same time, it is determined that tax instruments that entail less burden on the budget system can also contribute to achieving the goals set. It is concluded that, despite the opportunities available in the personal income tax system due to the provision of social and standard tax deductions for children, they are not fully implemented and do not contribute to achieving the goals of national projects. It is necessary to improve the procedure for personal income tax taxation both in terms of bringing the amount of tax deductions provided in line with the real cost of treatment and education services, and in terms of indexing the amounts of standard deductions for children with a focus on their provision to the least well-off segments of the population, which is achieved by simultaneously increasing the amount of deductions provided and limiting the amount of annual income that allows you to qualify for receiving such deductions.

Two-parameter model of optimization of the progressive taxation system and its applicability

The work aims to develop a model of income taxation that allows strengthening the fiscal effect of personal income tax and reducing the differentiation of income levels of different segments of the population, as well as assessing the impact of the proposed model on social inequality in Russia. To achieve this goal, a special two-parameter model of progressive income tax was developed, reflecting the result of studying the features of modern Russian taxation in the context of personal income tax. The key advantage of the developed tax model is the ability to assess social differentiation (by income category) in a pairwise subdecile breakdown, which allows the state to conduct a more balanced policy concerning each of the income groups participating in the study, which can be expressed, for example, in granting special tax preferences to decile groups that need it.

How Executive Compensation Changes In Response to Personal Income Tax Shocks (or Who Pays the CEO’s Income Taxes?)

We study the effects of personal income tax on executive compensation. Using a difference-in-differences approach based on large shocks to personal income tax rates, we find CEOs receive higher pay two years after tax increases. The higher tax burden drives CEOs to sell stock of their firms for liquidity reasons. Accordingly, boards increase equity-based pay to strengthen incentives. Pay raises after tax increases are negatively associated with CEO turnover, while the lack of a pay raise leads to lower firm performance. The effect of personal income tax on compensation is asymmetric; CEOs do not receive pay cuts following tax cuts.

Decomposing Personal Income Tax Redistribution with Application to Italy

The rise of wealth inequalities between and within nations is sustaining the request of reforming personal income taxes in many countries. A complete evaluation of the redistributive effects of tax instruments, however, implies investigating both vertical and horizontal equity aspects. I propose an augmented decomposition of the Reynolds-Smolensky index, where the reranking term is decomposed using geometric partition techniques, in order to measure how personal income tax instruments influence vertical and horizontal equity, as well. The application of the new method to novel Italian tax files suggests that the assessment of specific tax measures and/or tax reforms depends on which criterion of equity, vertical or horizontal, is adopted. The joint consideration of vertical and horizontal equity effects is also important when evaluating selected personal income tax instruments benefiting top income individuals and the tax measures adopted during the crisis. A specific focus on the regional redistributive effects of personal income tax is an additional key feature of this paper.

Personal Income Tax (PIT) and Economic Growth in Nigeria: A Vector Autoregression (VAR) Analysis

Purpose of the article: Quite a number of studies have shown that tax revenues significantly affect the economic growth in both developed and developing countries; however, there is scanty empirical evidence as regards whether personal income tax (a major component of tax revenue) affects economic growth in Nigeria. Methodology/methods: The ex-post facto research design was adopted and the theoretical framework was anchored on Laffer Curve Theory (LCT). Yearly time series data of personal income tax and the gross domestic product (GDP) were obtained from the Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria (CBN) statistical bulletins during theperiod 1987–2017. The data obtained was analysed using the Vector Autoregression (VAR) model via STATA 13.0. Scientific aim: This paper investigated the effect of personal income tax (PIT) on economic growth in Nigeria. Findings: The findings of the study revealed that personal income tax has significantly contributed to the level of economic growth in Nigeria, though negatively. Contributions: Based on the findings of the study, it was recommended that the regulatory framework of taxation in the country should put in place a more effective tax revenue generation system that can enhance better administration of personal income tax. The measure should emphasise and address the accountability of personal income tax. In addition, a well-equipped database on personal income tax or taxpayers should be established by the governments with the aim of identifying all possible sources of income of taxpayers.

Personal Income Tax Reform in China in 2018 and Its Impact on Income Distribution

AbstractIn the context of personal income tax (PIT) reform in China in 2018, this paper examines some of the major issues of concern regarding the reform and income distribution. Using the China Personal Income Tax Micro‐simulation model, the paper compares the differences between the 2011 and 2018 PIT systems, and finds that residents relying on different income sources may face a large degree of real tax rate change. Once the tax system is altered to PIT 2018, the coverage of PIT for wage earners will decrease from 46.9 to 23.4 percent, the income redistributive effect will drop from 1.95 to 1.22 percent and the PIT's role in fiscal revenue will also be negatively affected. Nevertheless, if individual income continues to grow, the share of PIT in fiscal revenue is expected to return to the 2018 level in 2022, but its income redistribution function is difficult to recover in the short term. The paper finds that the effect of PIT on income distribution depends on the tax structure. Gradual transition to an “entirely comprehensive” tax system when conditions are appropriate will achieve better income redistribution results at a lower average tax rate.

The Possible Effects of Personal Income Tax and Value Added Tax on Consumer Behaviors

In economics literature, it is accepted that all people are rational and they try to maximize their utilities as possible as they can. In addition, economic theories are formed with the assumptions not suitable to real life. For instance, indifference curves are drawn with the assumptions that there are two goods, people are rational, more is preferred to less and so on. Hence, the consumer behaviors are guessed according to this analysis. Nevertheless, these are invalid in real life. And this inconsistencey are examined by behavioral economics and neuroeconomics. Behavioral economics claims that people can behave what they are not expected since people can be irrational, their willpower is limited and altruistic behaviors can be seen and they can give more value to what they own. As a result of these, consumer behaviors become more different than that of economic theory. In addition to behavioral economics, neuroeconomics also examines consumer behaviors more differently than mainstream economic theory. It emphasizes the people using prefrontial cortex of the brain are more rational than the people using hippocampus of the brain. Therefore, people can make illogical choices compared to economic theory. In these cases, levying taxes such as personal income tax or value added tax can be ineffective or effective. In other words, the effect becomes ambiguous. Hence,the hypothesis that if government desires to levy personal income tax or value added tax, it makes a detailed research in terms of productivity of taxes forms the fundamental of this study.

Personal income tax and income inequality in Ecuador between 2007 and 2011

This paper uses data from individual income tax returns to explore the redistributive effect of personal income tax in Ecuador between 2007 and 2011. Following common practice in tax incidence analysis, we first compute indices of income tax progressivity and redistributive impact. We then mobilize microsimulation techniques to simulate the redistributive effect of personal income tax under different taxable income scenarios. Finally, we calculate the effective tax rates paid by top income groups and derive a range of optimal income taxes for the top 1% income group. We obtain two main empirical results. First, although Ecuador’s personal income tax is highly progressive, its redistributive capacity is low: our findings show that high-income individuals are more likely to reduce their taxable income through legal tax deductions than low-income individuals. Second, while the effective tax rates paid by high-income individuals are relatively low, optimal tax rates could be as high as 63%.

Measuring the Redistributive Effects of China's Personal Income Tax

AbstractPersonal income tax is a commonly used redistributive instrument to deal with inequality. Whether it achieves that efficacy requires an appropriate measurement. This paper aims to examine the redistributive effects of personal income tax (PIT) based on the generalized entropy indexes. Compared with the commonly used approach based on the Gini coefficient, the generalized entropy indexes are more sensitive to the structural features of the redistributive effects and can lead to more reliable evaluation about the redistributive policy adjustments. Based on this new approach, we assess the redistributive effects of the 2011 PIT adjustment in China by using the urban household survey data. Different from previous studies, our results show that the 2011 PIT adjustment has effectively reduced the inequality within high income group, and if hidden income is taken into consideration, the overall inequality reduction resulted from the tax adjustment turns out to be positive. This finding highlights the importance of judging the redistributive effects of PIT on the basis of right household income data and that China should pay more attention to the hidden income in designing the redistributive tax rules.

Personal Income Tax and Government Revenue: Evidence from Oyo State

The study examined the effect of Personal income tax on revenue generation in Oyo state. It also analyzed the significant components of Personal income tax on revenue generation in Oyo state. Data were obtained from approved budgets of the Oyo State government from 1990 to 2015. Pearson product moment correlation and multiple regressions were employed to analyze the relationship between the dependent variable (Revenue Generation in Oyo State) and independent variables (Pay As You Earn(PAYE), Capital Gain Tax, Road Tax, and Other Taxes ( Stamp duties, Betting and Gaming Taxes, Business Premises and registration levies, Development levies and Market fees)). Findings show that there is a positive significant effect of Pay As You Earn (PAYE) on Government Revenue in Oyo state (β = .1393567; p ≤ 0.05). All other variables have positive significant effect on Government Revenue in Oyo state with the exception of Capital gain tax which has negative effect on Government Revenue in Oyo state with the adjusted R2 @ 96.4%. In conclusion, Personal income tax impacted Government Revenue positively, strongly, significantly and statistically in Oyo State. It is now recommended that Oyo state government should look inward on how more internal revenue will be generated extensively in the state in order to achieve micro objectives of the government, and to eradicate the paucity of government revenue.

Redistributive Effect of Taxes and Transfers: Evidence from China

China’s sustained high-speed several-decade-long economic growth has raised the level of per capita income, but also brought about a serious income gap. Taxes and public transfers are main policy governmental tools in the process of redistribution. This paper leads a comprehensive analysis of the impacts of taxes and transfers on income redistribution using decomposition method and is based on China’s Urban Household Survey Data (2002-2009) derived from the National Bureau of Statistics of China. The empirical results reveal that government’s net transfer reduces urban household’s increasing market income inequality, and the improvement effect increases with time. Taking a closer look, it shows that both tax and transfer play positive adjusting roles. Transfer’s contribution is relatively larger, reflected mainly in the improvement of horizontal equality, while tax’s effect is mainly reflected in vertical equality. On the whole, the combined redistribution effect of personal income tax and social insurance expenses from residents to government is positive, and can play a role in regulating the income redistribution. Endowment insurance, social relief and unemployment insurance reduce inequality in the transfers of government to residents, even though the last two items’ effects are very weak. In contrast, provident fund expands income gap. The conclusions reached in this paper will refer to the refinement of income distribution reform, promotion of tax reform, and improvement of the social security system. Highlights The comparative analysis of tax and transfer impact on income redistribution has been done based on the research of urban households in China in 2002–2009 Rising positive impact of net transfers from the budget on the reduction of income inequality among urban population is demonstrated The impact of transfers on horizontal inequality reduction, and the impact of taxeson vertical inequality reduction is established The need to continue the tax reform and improve the social security system in order to reduce the inequality in the income of the population is demonstrated For citation Liu Baihui. Redistributive Effect of Taxes and Transfers: Evidence from China. Journal of Tax Reform, 2017, vol. 3, no. 1, pp. 43–51. DOI: 10.15826/ jtr.2017.3.1.030 Article info Received February 14, 2017; accepted March 27, 2017

Labor supply elasticity in Russia

The paper estimates wage elasticity of labor supply in Russia - both intensive and extensive margins. Empirical research is based on the Russia Longitudinal Monitoring Survey - Higher School of Economics data for the period from 2004 to 2014. The study uses an adaptation of the Heckman selection model, estimation proceeds in four stages. It is shown that elasticity of the decision regarding hours worked is insignificant for all demographic groups with the exception of married women, for whom it is significantly negative. The elasticity regarding the decision to participate is positive, but quite low for people aged 25-54, and is much higher for those in the early retirement age. The possible application of the obtained estimates is demonstrated by measuring potential effect of personal income tax and pension system reforms on the labor supply.

Decomposition of Redistributive Effects of Japanese Personal Income Tax, 1984–2009

This study examines how changes in the rate structure, deductions, and tax credits for personal income tax affect the inequality of posttax income, using micro data on Japanese households. The main contribution is the use of the fixed-income approach to assess the decomposed redistributive effects of the personal income tax. Several insights are obtained. First, the redistributive effects of the Japanese income tax declined during 1984-2009. Second, base effects substantially exceeded rate effects over this period. Third, credit effects greatly decreased the redistributive effect, as Japanese tax credits were proportional to tax liabilities with upper limits.

The Migration Flow of Teachers at Tertiary Level with a Focus in Economic Factors

This article discusses how economics factors affect the migration of teachers at the tertiary level. The study focuses on the analysis of earnings, a harmonised index of consumer prices, personal income taxes, the gross domestic product, unemployment and expenditure on education at the tertiary level of 32 European countries during three different moments, i.e. 2002 (the last world economic slump of the 20th century), 2006 (an economic expansion), and 2010 (the financial collapse of the 21st century). Results showed that: 1) economic factors affect the migration flow of teachers significantly; 2) the level of earnings is the key determinant of variations in the number of migrant teachers at the tertiary level in Europe, and 3) earnings and the effect of personal income tax determine the number of migrant teachers at the tertiary level in a country and 4) the unemployment also affects migrant teachers migration in the opposite way, i.e. the higher the unemployment, the lower the number of migrant teachers is.

THE INCOME REDISTRIBUTION EFFECT OF CHINA'S PERSONAL INCOME TAX: WHAT THE MICRO‐DATA SAY

AbstractThis article uses continuous micro‐level data to investigate the income redistribution effect of the personal income tax (PIT) in China beginning in 1997. We find that the average tax rate plays a larger role in determining the income redistribution effect of PIT than tax progressivity does. Although tax progressivity decreased as a result of rising personal incomes and a constant PIT policy prior to 2005, the income redistribution effect of the PIT improved as a result of the higher average tax rate. The tax reform beginning in 2006 increased tax progressivity while decreasing the average tax rate, thereby weakening the income redistribution effect of the PIT. Further analysis indicates that the middle‐income group was the only net loser before 2005, but it benefited from the PIT policy reform. A cross‐country comparison shows that China has a lower PIT burden and higher progressivity than developed countries; in fact, China's levels of progressivity and tax burden are similar to those of Latin American countries. (JEL H24, D31, H31)

The Income Redistribution Effect of China's Personal Income Tax: What the Micro Data Say?

This article uses continuous micro‐level data to investigate the income redistribution effect of the personal income tax (PIT) in China beginning in 1997. We find that the average tax rate plays a larger role in determining the income redistribution effect of PIT than tax progressivity does. Although tax progressivity decreased as a result of rising personal incomes and a constant PIT policy prior to 2005, the income redistribution effect of the PIT improved as a result of the higher average tax rate. The tax reform beginning in 2006 increased tax progressivity while decreasing the average tax rate, thereby weakening the income redistribution effect of the PIT. Further analysis indicates that the middle‐income group was the only net loser before 2005, but it benefited from the PIT policy reform. A cross‐country comparison shows that China has a lower PIT burden and higher progressivity than developed countries; in fact, China's levels of progressivity and tax burden are similar to those of Latin American countries.