Progress of the Personal Income Tax in Emerging and Developing Countries
36 Pages Posted: 30 Mar 2022
Date Written: January 1, 2022
Personal Income Tax (PIT) is one of the key sources of revenues in Advanced Economies (AEs) but plays a much more limited role in Low-Income Developing Countries (LIDCs) and Emerging Market Economies (EMEs), both in terms of revenue and redistributive impact. Notwithstanding, this paper shows that LIDCs and EMEs increased their PIT-to-GDP revenue by 110 and 48 percent, respectively, during the 1990-2019 period, a marked improvement in the PIT revenue performance. We find that this rise was driven primarily by economic developments and to a lesser extent by changes in the design of PIT systems. We also find that LIDCs that improved their tax-to-GDP ratios relied on a broader set of tax instruments and not exclusively on the PIT, suggesting that a successful revenue mobilization strategy of developing countries requires a comprehensive approach covering a wider range of taxes. Finally, using a newly assembled dataset of PIT characteristics of 157 countries over the 2006-2018 period, we estimate a novel redistribution index of the PIT in LIDCs. We show that the contribution of the PIT to inequality reductions has been significant.
Keywords: Personal income tax, progressivity, redistribution, low-income countries, emerging market economies, PIT revenue performance, PIT system, liability threshold, PIT revenue, PIT characteristic, Personal income tax, Income tax systems, Corporate income tax, Income and capital gains taxes, Global
JEL Classification: H24, D63, H20, H25
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