Personal Income Tax Reform Research Articles

INCOME TAX PAYERS AS SIGNIFICANT PARTICIPANTS OF PROACTIVE BUDGETING

The article analyzes the state of proactive budgeting in the world and in Russia as well as identifies the main possible directions for its development. The directions of reforming the taxation of personal income in foreign countries and Russia over the recent years are considered. Demand for a fair and effective approach to taxation is shown. The feasibility of developing proactive budgeting in the context of the personal income tax (PIT) reform in terms of expanding the rights of honored and distinguished taxpayers of PIT for participation in participatory budgeting is substantiated. Suggestions have been formulated to amend the regulatory framework on proactive budgeting, to encourage honored and distinguished taxpayers, and to provide them with the opportunity to actively participate in creating a list of projects as well as making decisions on their financing.

Toward a Comprehensive Tax Reform for Italy

This paper evaluates elements of a comprehensive reform of the Italian tax system. Reform options are guided by the principles of reducing complexity, broadening the tax base, and lowering marginal tax rates, especially the tax burden on labor income. The revenue and distributional implications of personal income and property tax reforms are assessed with EUROMOD, while a microsimulation model is developed to evaluate VAT reform options. Simulations suggest that a substantial reduction in the tax burden on labor income can be obtained with a revenue-neutral base-broadening reform that streamlines tax expenditures and updates the property valuation system. In addition, a comprehensive reform would benefit low- and middle-income households the most, by lowering significantly their overall current tax liability, which results in increased progressivity of the tax system.

Reform of personal income tax: modern condition and prospects

Methods. The results were obtained through the application of the following methods: analysis – in the study of the prerequisites for reforming the personal income tax; historical method – to study changes in tax rates on personal income; comparison – for the study of tax rates on personal income in countries with market economies, as well as developing countries; generalization – to determine the negative features of the modern system of taxation of personal income in Ukraine. Results. The main elements of the tax on personal income are characterized, in particular, tax payers, the object of taxation, the tax base. The prerequisites for reforming the taxation of income of citizens, which legislators plan to start in the near future, are justified. The main negative points and problems of the modern system of taxation of personal income in Ukraine are pointed out and summarized. It is noted that the introduction of a progressive scale of taxation on personal income tax is controversial. In addition, there is no agreement among lawmakers regarding approaches to reform, since several bills have been registered at once, proposing to abandon «flat» taxation and switch to «progressive». The need for concretization, further systematization of the directions of tax reform to obtain the desired effect is substantiated. Novelty. Based on the study of the tax rate formation on personal income tax in some countries of the world, the main negative features and problems of the existing system of taxation of personal income are systematized. The advantages and disadvantages of the progressive scale of taxation of income of individuals are supplemented, taking into account the achievements of modern scholars and tax researchers. Possible options for overcoming and partial elimination of existing problems are proposed. Practical value. The ways considered and supplemented by the authors to partially eliminate the existing deficiencies in the system of taxation of personal income can become the basis for improving tax administration mechanisms and reducing the risk of income shadowing.

Political Costs of Tax-Based Consolidations

This paper studies the impact of tax-based consolidations on reelection outcomes. Using a granular database of tax-based consolidations for a panel of 10 OECD countries over the last 40 years, we find that tax reforms are politically costly but some reforms are costlier than others. Measures aimed primarily at reducing existing deficits and debt are costlier than tax consolidation policies for improving long-term growth prospects. Electoral costs are particularly high for broad-based indirect tax and corporate tax reforms. Voters tend to penalize governments less if tax consolidations are announced early in the government’s term or if the government has a strong political mandate. Favorable economic conditions increase public support for tax-based consolidations. Personal income tax reforms are electorally salient if the reforms are frontloaded, announced during recessions, and in less progressive tax systems.

How Did the ‘Dualization’ of the Spanish Income Tax Affect Horizontal Equity? Assessing its Impact Using Copula Functions

The aim of this paper is to assess horizontal inequity (HI) caused by the introduction of a (semi-) dual structure for the Spanish personal income tax (PIT), adopting a copula function-based measurement framework. Following Bo et al. (2012), we estimate the Clayton, Frank and Gumbel copulas, belonging to the Archimedean class, to quantify the impact of the 2007 Spanish PIT reform on HI, comparing it with the previous tax design applied in 2006. In order to identify possible anticipation and adaptation effects, the analysis covers the 2004-2010 period. This research employs microdata from the Spanish PIT Return Panel. Results reveal two effects of the reform on the HI working in opposite directions: while the partition of the taxable income into two bases (one is taxed at ˜at rate) increases the HI, the transformation of personal and family allowances into tax credits reduces it. The predominance of one effect over the other depends on the equivalence scale applied.

Two General Lessons from the 2019 Personal Income Tax Reform of China

Abstract We have identified two general lessons, suggested from the 2019 personal income tax reform of China, regarding third-party reporting, tax compliance, and tax incidence. First, third-party reporting is an effective mechanism to enforce tax compliance. Second, tax evasion can affect tax incidence. We argue that these two general lessons are important for both academic researchers and policymakers.

Closing the Gap

Rising income inequality is a pressing political issue in Canada and internationally. Yet, policymakers in advanced economies have thus far failed to meaningfully address the issue. Tax policy is one of the primary tools available for governments to structure local distributive realities, but there is uncertainty regarding the ability of governments to take effective action in a globalized world economy. This policy brief puts forward viable reforms. The Canadian federal government can mitigate income inequality in Canada through targeted corporate and personal income tax reforms and a new approach to compliance enforcement.

Shifting tax burden to top income earners: what is the best way to reduce inequality?

Abstract The authors analyze to what extent and how the tax burden should be shifted towards top income earners in order to reduce income inequality. Starting from Lambert and Aronson (Inequality decomposition analysis and the Gini coefficient revisited 1993) and Alvaredo (A note on the relationship between top income shares and the Gini coefficient 2011) decomposition by income groups, they prove that for three types of revenue-neutral linear personal income tax reforms (PIT) based on Pfähler (1984) the redistributive effect is always higher than before the reform; and when the size of the rich group is sufficiently small (e.g. 1%), the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities. An empirical illustration of the theoretical results is provided using micro data from the Spanish PIT.

New Personal Income Tax Interpretation and Tax Planning

Under the current background of expanding domestic demand, the reduction of personal income tax can directly increase the disposable income of residents, and then directly stimulate consumer demand. Under the background of tax as a means of redistribution and the weakened role of income mediation, it is urgent to carry out reform. The main goal of the new personal income tax reform is to reduce taxes for middle - and low-income people. The state will raise the minimum threshold, increase special additional deductions and adjust the progressive tax rate. This paper starts from the background of the new personal income tax reform, studies six highlights of the new personal income tax reform, and focuses on the matters needing attention in the personal income tax declaration under the new tax system. Under the situation of ITS system going online and popularizing and strict supervision, this paper puts forward some Suggestions on how to do a good job in the collection and management of individual income tax and further strengthen the tax planning 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.

Research of existing tax systems in advanced economic countries

One of the key factors on which the effective functioning of the entire national economy depends is the organization of the state taxation system. Prospects for the reform of personal income tax are currently widely discussed with the aim of maximizing its fiscal functions and achieving equity taxation. Let us consider in more detail how foreign countries solve the problem of the fairness of taxation of personal income in the development of tax policy. The subject of the study is the foreign experience of taxation of personal income in countries with developed economies. The purpose of the study is to study the approaches to taxation of foreign countries in the current socio-economic conditions. Objective: to study the trends in the formation of the tax rate on personal income in countries with developed economies. General scientific methods are used: system analysis - to determine the specifics of tax development in economically developed countries; comparative analysis - to compare the principles in the formation of taxes in foreign countries and Ukraine. The following results were obtained: The prospects for the application of foreign experience in the taxation of personal income in Ukraine were considered. The analysis of income tax in Germany, France, Italy, Canada, the United States of America - the countries with the highest standards of living, according to the United Nations. The main features of income tax in these countries are identified, the possibility of borrowing them in the course of reforming the personal income tax in relation to Ukraine is assessed. Based on an analysis of the main approaches to taxation of personal income in countries with developed economies and Ukraine, a SWOT analysis was obtained. Conclusions: the tax systems of many states have their own historical prerequisites, are “adjusted” to the territorial and transgeographic features of countries, as well as their internal policies and the mentality of the population. Improving the efficiency of the tax system is really subject to the adjustment of the principles of taxation under the economic conditions of a particular state.

Political Costs of Tax-Based Consolidations

This paper studies the impact of tax-based consolidations on reelection outcomes. Using a granular database of tax-based consolidations for a panel of 10 OECD countries over the last 40 years, we find that tax reforms are politically costly but some reforms are costlier than others. Measures aimed primarily at reducing existing deficits and debt are costlier than tax consolidation policies for improving long-term growth prospects. Electoral costs are particularly high for broad-based indirect tax and corporate tax reforms. Voters tend to penalize governments less if tax consolidations are announced early in the government's term or if the government has a strong political mandate. Favorable economic conditions increase public support for tax-based consolidations. Personal income tax reforms are electorally salient if the reforms are frontloaded, announced during recessions, and in less progressive tax systems.

Does Progressivity Always Lead to Progress? The Impact of Local Redistribution on Tax Manipulation

The goal of this paper is to study the effects of introducing income redistribution at the municipal level, with the adoption of local tax progressivity. In particular, we analyse whether this complex fiscal tool modifies the incentives of local politicians to be strategic leading to higher tax manipulation, in the form of political budget cycle. We exploit an Italian reform of the local personal income tax (PIT), which was flat before the intervention, that allows mayors to introduce progressive schemes. First, we make use of the staggered timing of local elections to estimate a Difference-in-Differences model and we find that the reform consistently amplifies political budget cycle of local PIT. In terms of mechanism, progressivity allows mayors to target diverse income groups and to play different strategies: high income rates, indeed, are subject to larger manipulation than the moderate ones. Second, we exploit the fact that income concentration level is a valid predictor for the introduction of progressivity. The main results are confirmed in a Triple-Differences analysis. And finally, we show that manipulation is rewarding from an electoral point of view. These results reveal a negative side of decentralizing income redistribution as it may lead to consistent tax manipulation and large distortions in fiscal policy.

Evaluating scenarios of a personal income tax reform in Russia

This article is aimed at evaluating different scenarios of the personal income tax reform in Russia, intended to replace the flat tax scale with a progressive scale. To test the expediency of this plan, the authors present a three-parameter model to calculate the expected effects from different scenarios. The model is based on the idea that the best project should simultaneously reduce the assets ratio, increase budgetary revenue and should minimize the risk of the reform’s non-fulfillment. The research relies on the statistical data on the population’s income distribution. To neutralize distortions, the authors calibrated the initial statistical data on distribution in the high-income group (tenth decile) of the population. The risk of non-fulfillment was assessed through an expert poll. The proposed model was used to test four reform projects, which were developed by the government, the Communist Party, the Liberal Democratic Party, and the party “Just Russia”. It was found that the best project, according to the three parameters applied in the analysis, was the governmental project, which preserves the flat income scale and raises the rate from 13 to 15%. It was also shown that the other projects dramatically overestimated the growth in tax revenues due to incorrect calculations of the distribution of the population’s incomes in the tenth decile group. Thus, at the moment there are no rational alternatives to the governmental project of the reform and there is also no consensus between the Russian opposition parties and the expert community, which prevents them from working together to design a single reform project. It is concluded that at present Russia needs a balanced project which would include multi-step adjustments of the personal income tax over an extended period of time – ten years or more. For citation Balatsky E. V., Ekimova N. A. Evaluating scenarios of a personal income tax reform in Russia. Journal of Tax Reform. 2019;5(1):6–22. DOI: 10.15826/jtr.2019.5.1.057 Article info Received January 21, 2019; accepted March 18, 2019

Attitudes on regulatory framework of student employment

Students enter the labour market through a Student Service to have the opportunity to pay for tuition fees or to earn additional income that would allow for the parents or guardian's budget to be disbursed. Although almost 70% of full-time students were working through a student contract in 2016, the Regulation on intermediaries for the employment of full-time students from 1996 was the only legal document that was regulating student employment. Due to improperness of this document and the fact that student employment is not under the Labour Law, in November 2017 the Croatian Government published a proposal for the new Student Employment Act, which was passed in November 2018. Subsequently, the reform of the regulatory framework of student employment is important to the student workforce. According to the Regulation in force, there is no constraint on the maximum weekly working hours or maximum annual earnings. Nevertheless, student income can become taxable under the rules of Personal Income Tax Law if it exceeds the annual limit of 60,600.00 HRK. Consequently, the reform of personal income tax is also significant for students if they do not want to become a taxpayer of personal income tax. Based on this, the main goal of this paper is to analyse attitudes of students towards the regulatory framework of student employment, reform of personal income tax and their work under the mediation of the Student Centre. In order to question student attitudes, the questionnaire was used and the results of the analysis carried out before changes in legislation, in February and March 2018, indicate that students were not satisfied with the existing regulatory framework and the personal income tax reform and that they expect the improvement of working conditions with the implementation of the new Student Employment Act.

Balancing the equity-efficiency trade-off in personal income taxation: an evolutionary approach

In this paper we propose a multi-objective evolutionary algorithm for supporting the definition of a personal income tax reform. As a case study, we apply this methodology to the Italian income tax, and consider a recently implemented tax cut. Our optimization algorithm can determine a set of tax structures that maximize the redistributive effect of the tax while minimizing its inefficiency—considering for the former the Reynolds–Smolensky index and for the latter the weighted average of taxpayers’ effective marginal tax rates. The approach also takes into account two additional factors: the tax has to guarantee a specific revenue and to minimize the share of losing taxpayers with respect to the pre-reform situation. Experimental results demonstrate that the methodology we employ can support the policymaker’s decisions in complex, real-world situations.

The International Experience of Personal Income Tax Reform and China's Practice

Individual income tax plays an important role in China's tax structure. The reform of personal income tax has always been the focus of China's tax reform. However, there are still some problems in China’s personal income tax system. It does not play its due role in regulating income distribution. This paper focuses on the tax system of taxable unit, expense deduction standard, tax rate and so on in the United States and Japan. And proposes that in the process of individual income tax reform in China, it is necessary to perfect the tax collection and management system, improve the expense deduction standard, and adjust the tax rate structure. It is recommended that accelerating the establishment of a mixed tax system for individual income tax in China and a shift from individual taxable units to family-based taxable units.

Direct Taxation and State–Society Relations in Lagos, Nigeria

ABSTRACTExisting research suggests that external sources of finance, such as foreign aid and natural resource rents, allow states to generate revenue independently of their societies, disincentivizing them from forming close links with their citizens and severely problematizing the notion of a social contract. In Lagos, Nigeria's commercial capital, a series of personal income tax reforms have seen an increase in taxpayer compliance. Considering Lagosians’ perceptions of their relation with the state government, this study examines whether the state had to ‘earn’ its revenue by developing a closer relationship with its citizens, and whether citizens responded through a greater willingness to pay tax. It explores how citizens understand this relationship, what role they perceive themselves to fulfil, and what their expectations are for the future of state–society relations. The study shows how, through efforts to visibly link tax to service delivery, a social contract is emerging between Lagos State and its citizens — but that this relationship differs among groups, in that it is shaped by pre‐existing concepts of public organization and modes of political engagement.

Revenue and Distributional Impact Analysis of Indonesian Personal Income Tax Reform in 2008

Since 1983, Indonesian tax policy has been the subject of ongoing reforms in order to replace the old colonial tax arrangements, reduce income dependency from oil and gas, decrease the government's foreign debt and maintain its fiscal sustainability. Nevertheless, after 25 years of reform, actual Indonesian tax performance is still far from what might have been expected as Indonesia have one of the lowest total tax ratios among the ASEAN countries. This research show that the most recent changes put in place may have reduced potential tax revenue from personal income but an increase in the compliance rate.

The impact of personal income tax rates on the employment decisions of small businesses

PurposeSmall businesses file taxes in accordance with the personal income tax code because they are considered flow-through entities. Thus, personal income tax reforms directly affect the incentives small business owners face regarding employment and operations. The paper aims to discuss these issues.Design/methodology/approachThe authors use the changes in personal income tax rates during the 1993 and 2001-2003 reforms and micro-level data to estimate the effect of statutory tax rate changes on small business employment decisions.FindingsThe authors add two contributions to the current literature: first, the author allow for intertemporal tax planning and second, the author allow the firm’s decision to employ labor to be correlated with the firm’s wage bill decision. Estimation of a Heckman selection model for wage bills shows that the probability that a business will employ labor is 1.18 percent higher when current tax rates increase by one percentage point and 0.70 percent lower when future rates are expected to increase by one percentage point. Among firms that already employ labor, the median wage bill elasticity with respect to current tax rates is −0.64. These estimates are larger than those reported in previous research because my model includes future taxes and allows for correlation between the firm’s employment and wage bill decisions. Omitting the intertemporal tax responses biases the estimates of previous researchers upwards, whereas assuming the two firm decisions are independent biases estimates towards zero.Originality/valueThis paper has been cited in publications published in Journal of Entrepreneurship and Public Policy.