Personal income taxation and income inequality in Asia-Pacific: a cross-country analysis

Sergey A. Belozyorov, Olena V. Sokolovska

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


Keywords


personal income tax, income inequality, progressivity, Asia-Pacific, Gini coefficient, cross-country comparisons, principal component analysis, regression analysis

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DOI: http://dx.doi.org/10.15826/jtr.2018.4.3.054

Copyright (c) 2018 Sergey A. Belozyorov, Olena V. Sokolovska

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