Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries

72 Pages Posted: 20 Sep 2005  

Eric M. Zolt

University of California, Los Angeles (UCLA) - School of Law

Richard M. Bird

University of Toronto - Joseph L. Rotman School of Management; Georgia State University - Andrew Young School of Public Policy

Abstract

Inequality has increased in recent years in both developed and developing countries. Tax experts, like others, have focused on how taxes may reduce the inequality of income and wealth. In developed countries, the income tax, especially the personal income tax, has long been viewed as the primary instrument for redistributing income. This Article examines whether it make sense for developing countries to rely on personal income taxes to redistribute income. We think not, for three reasons. First, the personal income tax has done little, if anything, to reduce inequality in many developing countries. Second, it is not costless to pretend to have a progressive personal income tax system. Third, opportunity costs also exist from relying on taxes for redistributive purposes. If countries want to use the fiscal system to reduce poverty or reduce inequality, they need to look elsewhere.

This Article begins with some initial reflections on the redistributive role of the tax system. It then considers the relative success of developed and developing countries in using tax systems to redistribute income. Finally, This Article examines some alternatives in reforming the personal income tax, as well as options available to developing countries in designing and implementing more progressive fiscal systems.

Keywords: redistribution, inequaltiy, personal income tax, developing countries, tax reform

JEL Classification: H24

Suggested Citation

Zolt, Eric M. and Bird, Richard M., Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries. UCLA Law Review, Vol. 52, 2005; UCLA School of Law, Law-Econ Research Paper No. 05-22. Available at SSRN: https://ssrn.com/abstract=804704

Eric M. Zolt (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

Richard Miller Bird

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
905-274-8841 (Phone)

Georgia State University - Andrew Young School of Public Policy

International Studies Program
Atlanta, GA 30303-3083
United States

HOME PAGE: http://www.aysps.gsu.edu

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