Income Tax System Research Articles

Health Risk, Insurance, and Optimal Progressive Income Taxation

Abstract We study the optimal progressivity of personal income taxes in a general equilibrium overlapping generations model where individuals are exposed to idiosyncratic shocks to labor productivity and health status over the lifecycle. Our results—based on a calibration to the US economy—indicate that both, the presence of health risk and the available insurance institutions, have a strong effect on the optimal level of tax progressivity. Given the fragmented and non-universal health insurance system in the US, a welfare maximizing income tax system is substantially more progressive than the current US income tax. The higher progressivity provides additional redistribution and social insurance, especially for unhealthy low income individuals who have limited access to health insurance. When exposure to health risk is removed or reduced by introducing more comprehensive health insurance systems, we observe large decreases in the optimal level of income tax progressivity, and the optimal tax system resembles findings from the previous literature. These findings highlight the importance of accounting for the unique characteristics of health risk and the design of the health insurance system when characterizing optimal income taxes.

Worldwide Fiscal Progressivity: What can we Learn from Subjective Wellbeing Economics?

The link between fiscal progressivity and subjective well-being at global level is an issue that has hardly been considered in the literature on the Economics of Happiness. Oishi et al. (2012) is almost the only work in this field, and they concluded that those countries which had more progressive income tax systems were also happier. Our work use their definition of progressivity as the difference between the upper and lower marginal rate on income, in order to prove its relationship with subjective well-being (SWB), but we have observed that such indicator is not very significant for a sample of 111 countries. Besides, we conclude that the fact that a country's maximum income tax rate is high turns out to have a strong influence on the declared subjective well-being of its citizens. One possible explanation for it could be that they are countries with a high GDP per capita in which disposable income after taxes remains high. However, it must be taken into account that in our work we have managed to isolate the influences that the GDP per capita variable could have using the principal component analysis method.

The Impact of Wage Taxes on Income-Based Gender Inequality in Turkiye

This study investigates implicit gender bias in Turkey's income tax system using panel data from TURKSTAT's household budget survey from 2002 to 2013. The system primarily operates on a withholding tax basis, employing progressive tax rates and a Minimum Living Allowance to reduce payable income tax. Despite addressing the ability to pay, no concrete measures were implemented during that period to bridge the gender pay gap or enhance employment incentives. Regression models using panel data reveal bias in favor of male wage earners regarding income tax tariffs and minimum living allowances within the analyzed period.

Generalized compensation principle

Economic disruptions generally create winners and losers. The compensation problem consists of designing a reform of the existing income tax system that offsets the welfare losses of the latter by redistributing the gains of the former. We derive a formula for the compensating tax reform and its impact on the government budget when only distortionary tax instruments are available and wages are determined endogenously in general equilibrium. We apply this result to the compensation of robotization in the United States.

Reconstruction of International Tax Rules to Meet the Challenges of Digital Economy

The current cross-border income tax collection rules of “positive income is levied in the source country and passive income is levied in the resident country” seriously violate the benefit principle in practice. The corporate income tax system is the institutional root of the failure of the above rules. The digital economy with data as the key production factor, invisibility and liquidity, relying on user participation and natural monopoly intensifies the negative impact of the corporate income tax system on the current rules. Starting from the principle of benefit and combined with the theory of value creation, this paper advocates the reconstruction of the cross-border income tax collection rule system, which takes the whole multinational enterprise group as the tax subject, takes the formula distribution as the method, takes the progressive tax rate as the improvement direction, and adopts “positive income is levied in the resident country and passive income is levied in the source country”.

PERSONAL INCOME TAX POLICY TOWARD SUSTAINABILITY AND FAIRNESS

Tax-benefit microsimulation models can be utilized to address a range of policy questions. In Vietnam, the personal income tax system has seven tax brackets, but its current progressive taxation has been deemed unreasonable due to its numerous steps with narrow intervals, resulting in abrupt tax step jumps. To improve the competitiveness of the economy in attracting foreign experts and skilled workers and incentivize labor efforts, we have proposed three scenarios for personal income tax brackets in Vietnam. The results indicate that a change in tax brackets, which involves increasing tax revenue and reducing inequality, is the more favorable option. However, changing the base tax deduction and additional tax deduction per dependent did not lead to desirable outcomes. These findings emphasize the importance of designing tax policies that achieve multiple objectives and are tailored to the specific circumstances of the situation.

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.

Corporate tax-shields and capital structure: leveling the playing field in debt vs equity finance

A common feature within most corporate income tax systems is that the cost of debt is deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion is the creation of under-capitalized firms – raising default risk in the process. Using a difference-in-differences approach, this paper shows that a reduction in tax discrimination between debt and equity finance leads to better capitalized banks. The paper exploits the exogenous variation in the tax treatment of debt and equity created by the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment increases bank capital ratios, driven by an increase in equity rather than a reduction in lending activities. The change also leads to a reduction in risk taking for ex-ante low capitalized banks. Overall, these results suggest that the ACE could be a valuable policy instrument for prudential bank regulators.

The role of political elites in income tax system design and tax fairness

Given the importance of fairness in the public acceptance of tax systems (Mirrlees et al., 2011), understanding the role of political elites in the tax design process and how this impacts fairness is important. In this paper, we use an interpretative approach to examine the design and ultimate rejection of the Kansas tax policy experiment that ran from May 2012 to June 2017. The central design element of this experiment was the fundamental disruption of the long-standing principle of horizontal equity (fairness), in which non-wage business income was relieved of income tax, while wage income was taxed. By interpreting this experiment through a Bourdieusian lens, we identify five key themes that are helpful in understanding income tax design, tax fairness, and the role played by political elites. Overall, we contribute to the literature by highlighting the way in which cultural capital may be used by political elites to reformulate groups of taxpayers in order to justify unequal treatment of equal taxpayers, which represents a violation of the notion of horizontal equity (fairness). We also highlight that although such violations of fairness in income tax system design may be sustainable in the short run, over the longer term, notions of fairness are so deeply embedded in the habitus of individual taxpayers that a return to the status quo is likely.

Optimal Cooperative Taxation in the Global Economy

How should countries cooperate in setting fiscal and trade policies when government expenditures must be financed with distorting taxes? We show that even if countries cannot make explicit transfers to each other, every point on the Pareto frontier is production efficient, so that international trade and capital flows should be effectively free. Trade agreements must be supplemented with fiscal policy agreements. Residence-based income tax systems have advantages over source-based systems. Taxing all household asset income at a country-specific uniform rate and setting the corporate income tax to zero yield efficient outcomes. Value-added taxes should be adjusted at the border.

Why Is Wealth White?

Racial wealth inequality is no accident of history. Rather, it is the intended result of the southern Democrats in Congress who controlled federal tax policy throughout most of the twentieth century. Beginning in the 1930s, champions of white supremacy, such as Senator Pat Harrison (D-MI), Senator Walter George (D-GA), and Senator Harry F. Byrd, Sr. (D-VA), turned to an ostensibly race-neutral provision of the US income tax code—the preferential treatment of gains from investment—to uphold their (im)moral economy of “whites-only” wealth. After 1965, these segregationists’ successors—particularly Senator Russell B. Long (D-LA) and Senator Lloyd Bentsen (D-TX)—furtively rebuilt and shored up the structure of racial inequality with additional tax breaks (called “tax expenditures”) for investors. Our income tax system embodies—and immortalizes—a Jim Crow–era moral economy of “whites-only” wealth. Thanks to pro-investment tax expenditures, the racial wealth gap has widened over the last four decades as the very richest American households—the white 1 percent—compounded their wealth, at the expense of everyone else.

Homeownership Investment and Tax Neutrality: a Joint Assessment of Income and Property Taxes in Europe

Western countries’ income tax system exempts the return from investing in owner-occupied housing. Returns from other investments are instead taxed, thus distorting households’ portfolio choices, although it is argued that housing property taxation might act as a counterbalance. Based on data drawn from the Statistics of Income and Living Conditions and the UK Family Resources Survey, and building on tax benefit model EUROMOD, we provide novel evidence on the interplay of income and property taxation in budgetary, efficiency and equity terms in eight European countries. Results reveal that, even accounting for recurrent housing property taxation, a sizeable ‘homeownership bias’ i.e. a lighter average and marginal taxation for homeownership investment, is embedded in current tax systems, and displays heterogeneous distributional profiles across different countries. Housing property taxation represents only a partial correction towards neutrality.

EU’s Legal Framework on Personal Income Tax and Suggestions for Asean to Protect The Rights of Taxpayers

The European Union (EU) has a complete and standard legal system, which is always the object of research and evaluation to learn for many countries. The EU comprises countries with an appropriate personal income tax system to ensure human rights. To ensure equality and human rights, and development in every member state, the EU seeks to harmonise personal income tax law, an area primarily of national jurisdiction. This article aims to study and evaluate some basic regulations that the EU has issued to create compatibility of the personal income tax law of the member states, better ensure human rights and promote the development of the Union. Based on the experiences of the EU, the article analyses some implications for the harmonisation of personal income tax law within the ASEAN from the perspective of international private law.
 Keywords: Personal Income Tax, Legal Harmonisation, EU, ASEAN

Do People Smooth their After-Tax Income? Evidence from Japanese Local Tax

Abstract This study provides evidence that under the Japanese local individual income tax system, individuals smooth their after-tax income by choosing the timing of their tax payments. We construct a monthly data set of Japanese local taxes with sample periods for over 26 years. The results show that though the tax amounts are pre-determined in one-year units by the system, individuals pay more taxes during months when their incomes are high, such as in “bonus” periods, than other months in a year. The t-statistics for means indicates that there exist significant upward deviations during these months. JEL classification numbers: H31; H24; E62. Keywords: Consumption smoothing; Local income tax; Inter-temporal decision making; Mean test; Levene test.

ANTITRUST AND INEQUALITY

ANTITRUST AND INEQUALITY

Income taxation and equity: new dominance criteria with a microsimulation application

This paper addresses the problem of the normative evaluation of income tax systems and income tax reforms. While most of the existing criteria, framed in the utilitarian tradition, are uniquely based on information about individual incomes, this paper, building upon the opportunity egalitarian theory, proposes new equity criteria which take into account also the socio-economic characteristics of individuals. Suitable dominance conditions that can be used to rank alternative tax systems are derived by means of an axiomatic approach. Moreover, the theoretical results are used to assess the redistributive effects of an hypothetical tax reform in Romania through a microsimulation analysis.

Problems and Improvement of the Special Additional Deduction System of Personal Income Tax

The new individual income tax law was officially implemented in 2019, and one of the highlights is the new six special additional deduction policies. The emergence of the special additional deduction policy aims to solve the problems of people's livelihood, reduce the tax burden of the people, and achieve social equity. At this stage, various special additional deduction policies have been implemented in various places. While achieving certain results, the disadvantages of the policy have become increasingly prominent. The policy still needs to keep pace with the times, spit out the old and accept the new. This paper will analyze the problems existing in the implementation of the special additional deduction system of personal income tax at this stage, draw lessons from foreign beneficial experience, and combine social reality to put forward scientific and feasible suggestions for improving the special additional deduction system.

A Primer on the Income Tax Consequences of the NCAA’s Name, Image and Likeness (NIL) Earnings for College Athletes

NCAA domestic college athletes can now financially benefit from their name, image, and likeness (NIL). The purpose of this article is to “educate” athletes on the new NIL rules in financial literacy. With new NIL income flowing to athletes, federal income tax consequences of these transactions must be addressed. This article results in a detailed introduction to the applicable federal tax rules regarding NIL income for athletes to stay in compliance with those laws. From understanding NIL income, to how the tax formula works, what tax forms apply, and what taxes may be due, this article provides a comprehensive toolkit for athletes who will be financially benefitting from NIL. Athletes must learn to understand the tax rules associated with the income from the NIL. In general, most athletes earning equal to or less than $12,550 in NIL income should have no federal income tax due. However, athletes likely must fill out tax returns, and as self-employed taxpayers, may owe self-employment taxes. Most athletes have spent many hours weekly and yearly mastering the sport and more than likely not as much time holding jobs. As such, there is a lack of basic understanding of the United States’ income tax system.

A systematic study of income tax and revenue of Nepal in recent times

This present paper deals with the income tax and revenue system of Nepal. This includes historical and conceptual references to income tax and revenue system with reference to Nepal. Revenue is the backbone for the development of any country. Income tax has been put on the people by the state for the holistic development of state and people. The research focuses on the theoretical approaches adopted and implemented by the state or government.

Ethiopian Direct Tax System: The Reform of 2016 and Perception of Business and Employment Income Taxpayers

The objective of the study was to analyze the Ethiopian direct tax system focusing on the reform of the 2016 and perception of the taxpayers towards the fairness of the direct tax system. To achieve the objective of the study descriptive and inferential research design and mixed research approach was adopted. As data sources, both primary and secondary data sources were collected. Primary data was gathered from 768 employment and business income taxpayers found in Addis Ababa via a standard questionnaire. Besides, secondary data were gathered from the Ministry of Finance and economic cooperation for the period 2007/08 to 2020/2. The collected data were analyzed by using descriptive data analysis tools. In order to compare the perception and the tax collection performance Mann Whitney U test and paired samples t-test test was conducted respectively. The major findings of the study show that there is a significant variation in the perception of employment and business income taxpayers on the fairness of the Ethiopian direct tax system. The employment income taxpayers didn’t believe that the current income tax system of Ethiopia is fair from the different dimensions of fairness while the business income taxpayers agreed to most of the dimensions. The paired samples t-test confirmed that the direct tax revenue shows a significant mean increment after the reform of 2016 than before at a 5% level of significance. The Ethiopian direct tax system needs a major revision or reform to enhance the contribution of business income tax revenue, rental income tax revenue, and other taxes. In addition, the tax authority is recommended to employ sound administration and control systems for the collection of domestic indirect tax.