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Book part
Publication date: 17 November 2003

Harvey J Iglarsh and Ronald Gage Allan

Scholars suggest that failure to include implicit taxes in analyses of vertical equity understates the progressivity of the tax system. This paper develops an analytic…

Abstract

Scholars suggest that failure to include implicit taxes in analyses of vertical equity understates the progressivity of the tax system. This paper develops an analytic expression for imputing the implicit tax associated with tax-exempt bonds using the tax-exempt interest income reported on individual income tax returns. To measure progressivity, Kakwani indices are calculated using three definitions of income and three measures of tax liability. In addition, the indices are computed by adding implicit income to the income measure. Examination of the Kakwani indices leads to the conclusion that the tax system is progressive for all measures of tax liability. Total tax (explicit plus implicit), measured against explicit plus implicit income, is more progressive than explicit tax measured against explicit income. Including the implicit tax associated with tax-exempt interest in the measurement of tax progressivity increases the level of progressivity of the tax system slightly.

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Advances in Taxation
Type: Book
ISBN: 978-0-76231-065-4

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Article
Publication date: 21 October 2013

Michael Busler

The purpose of this paper is to show an optimum income tax policy, given that the government must raise sufficient tax revenue to fund public goods and services as well as…

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Abstract

Purpose

The purpose of this paper is to show an optimum income tax policy, given that the government must raise sufficient tax revenue to fund public goods and services as well as income transfer programmes. The paper examines the different types of taxes and then suggests a policy that is efficient, equitable, easy to administer and leads to a higher level of economic growth.

Design/methodology/approach

A literature review has been done to find all scholarly work that relates to income tax policy and its effect on economic growth. Results from endogenous growth models have been utilised to determine both the significance and the magnitude of income tax policy's effect on the growth rate of real GDP.

Findings

After examining the benefits of each type of taxation and reviewing the principles of capitalism, a proportionate (single rate) tax of 12 per cent on all income would be approximately revenue neutral in the USA, and would add to the growth of real GDP, thereby improving the standard of living.

Research limitations/implications

The paper concentrates on income tax policy in the USA. While it is believed that the conclusions apply to virtually all market-based economies, cultural differences in some countries may result in a modification of the conclusion to fit the society.

Practical implications

In the USA today, the majority of people favour changing the current income tax code. The debate is about what to change and how to change it. This debate is also important to developing nations who try to set an income tax policy that reaches the goals while encouraging growth.

Originality/value

While the literature shows varying studies concerning the impact of tax policy, there is a gap when searching for an optimum policy. Many scholars have made suggestions but none of them seem to be optimal. This topic is of particular interest in the USA and the rest of the developed and non-developed world, since the recent performance of GDP growth has been very slow and in many instances negative. Most countries have tried combinations of monetary and fiscal policies to encourage growth, but none seem to be working effectively. The solution may be to change income tax policy. The proposal for an optimum income tax policy is new and different from any that has been suggested as yet.

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World Journal of Entrepreneurship, Management and Sustainable Development, vol. 9 no. 4
Type: Research Article
ISSN: 2042-5961

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Article
Publication date: 1 June 1990

John Creedy

This article examines income tax progression as a mechanism forachieving the intertemporal adjustments of earnings profiles. With arising income profile, the preference…

Abstract

This article examines income tax progression as a mechanism for achieving the intertemporal adjustments of earnings profiles. With a rising income profile, the preference for progression arises from the market (borrowing) rate of interest exceeding the rate at which the government borrows. For a given tax burden, each individual is found to prefer a marginal tax rate of unity, with the threshold set as high as possible. With a common tax structure, the conditions under which all individuals prefer progression is examined.

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Journal of Economic Studies, vol. 17 no. 6
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 20 May 2003

Jeffrey A Mills and Sourushe Zandvakili

Using decomposable measures of inequality, the implications of household structure are investigated by examining inequality between and within household groups based on…

Abstract

Using decomposable measures of inequality, the implications of household structure are investigated by examining inequality between and within household groups based on the number of exemptions, which correlates with household size, and the filing status, which correlates with the common forms of household structure, i.e. married, single, head of household. Detailed household income data are used to measure income inequality for both pre-tax/transfer and post-tax/transfer definitions of income. These decompositions provide information about the degree of inequality, both before and after taxes and transfers, which is due to household size and filing status. The bootstrap is employed to construct standard errors for the inequality measures and their decompositions, and hypothesis tests are conducted to determine whether the observed changes in the distribution of income are statistically significant.

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Fiscal Policy, Inequality and Welfare
Type: Book
ISBN: 978-1-84950-212-2

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Book part
Publication date: 17 November 2003

Bradley D. Childs

The results of this study indicate that a likely reason why a negative relation between estimated implicit taxes and pretax returns is empirically observed is the…

Abstract

The results of this study indicate that a likely reason why a negative relation between estimated implicit taxes and pretax returns is empirically observed is the researcher’s election to choose a zero tax rate as the benchmark state and local tax rate. Normally, an observed negative relation between estimated implicit taxes and pretax returns supports the hypothesis generated by implicit tax theory. This conclusion regarding the implicit tax hypothesis may be premature whenever the incidence of state and local income taxes contributes to this empirical finding. First, state income taxes, treated as a negative subsidy when the benchmark state and local tax rate is set at zero, will likely cause implicit taxes to be underestimated. Second, the observed relationship between estimated implicit taxes and pretax returns appears to be reversible depending upon the researcher’s election of a statutory tax rate that incorporates the selected benchmark state and local tax rate.

The present study uses a sample of 848 firms covering the years from 1989 through 1998 to show how the relation between estimated implicit taxes and pretax returns can be manipulated by the selection of the benchmark state and local tax rate. Since choosing an accurate benchmark state and local tax rate can be problematic, the present study suggests adjusting both estimated implicit taxes and pretax income by the amount of state and local income taxes incurred. The results, using the regression model making this adjustment, appear to nullify the negative bias of a zero tax rate as the benchmark state and local tax rate.

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Advances in Taxation
Type: Book
ISBN: 978-0-76231-065-4

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Book part
Publication date: 20 May 2003

Lea Achdut, Yasser Awad and Jacques Silber

The paper proposes an alternative way of defining tax progressivity, one in which it becomes a function of marginal, not average tax rates. Changes in Tax Progressivity…

Abstract

The paper proposes an alternative way of defining tax progressivity, one in which it becomes a function of marginal, not average tax rates. Changes in Tax Progressivity are then related to modifications in the distribution of pre-tax incomes or to variations in marginal rates. Using Israel’s Wage and Insurance Data File for the year 1993, the empirical analysis checks the impact of the 1995 Law for the Reduction of Poverty and Income Disparities on the progressivity of the National Insurance Tax System. Simulations are also conducted to study the effect of alternative policies.

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Fiscal Policy, Inequality and Welfare
Type: Book
ISBN: 978-1-84950-212-2

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Book part
Publication date: 20 May 2003

Jean-Yves Duclos, Vincent Jalbert and Abdelkrim Araar

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated two major and “rival” methodological strands, namely…

Abstract

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated two major and “rival” methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson indices, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect and a loss of redistribution due to either classical HI or reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across groups. As in recent work, equals are identified through a non-parametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal which of reranking or classical HI is more important since this requires a judgement that is fundamentally normative in nature.

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Fiscal Policy, Inequality and Welfare
Type: Book
ISBN: 978-1-84950-212-2

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Book part
Publication date: 11 June 2021

Omar Habimana and Côme Nahimana

This study uses a descriptive casual design and survey random sampling from 115 observations from five-star, four-star and three-star hotels due to the fact that they…

Abstract

This study uses a descriptive casual design and survey random sampling from 115 observations from five-star, four-star and three-star hotels due to the fact that they provide employee staff feeding or complimentary service. The Pearson correlation and multiple regression were used to test the direct and mediating effects for linear relationships between income tax and financial performance. Tax on adjusted net income has a significant effect on net income and non-significant effect on return on asset (ROA). This means that the level of income tax paid by the hotels after reintegration of non-deductible charges including complimentary staff feeding and other allowances reduced their assets and turnover in general thus slowing reinvestment. The findings reveal that firm liquidity had a significant effect on ROA. This indicates that the income tax pay-out decreases hotels’ cash flow resulting on loan diversification leverage. Shareholders are therefore forgoing their shares for reinvestment in different businesses other than hotels. The findings also reveal a significant effect of firms’ age on income tax on hotels’ financial performance. Simply paying income taxes is not lowered by the hotels’ age thus endorsing the concept of paying tax when income is available and vice versa when there is no income. Since Rwanda promotes investment and doing business for the private sector, the tax base increases the tax collection amount instead of collecting a small amount on a few number of tax paying hotels. This commends the tax administration review and frequently harmonised the tax procedures to hospitality sector and is the key development of their financial performance, which had been used by the hotels of the developed countries like the USA and Europe. This will improve Rwanda’s competitiveness in hotel induction and sustain hospitality business investment with tax base for government. It was pragmatic that hotels may directly deduct all related expenses before income tax calculation while others assimilate them into other similar expenditures. There is no formal way for accounting these hotel expenses, whereas the category of staffs benefitting are mainly junior staffs who, in turn, are low-wage holders. This does not leave space for hotel owners to take out incentives therefore leaving out hotels’ darkness in their earnings returns and staff welfare. This chapter presented the directorial policy, philosophy and practices in tourism or hospitality (hotel) sector in Africa. It has become relevant for harmonisation of financial performance while including all life cycle practices of hotels like staff feeding or complimentary service. This chapter is classified as an empirical study.

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Enterprise and Economic Development in Africa
Type: Book
ISBN: 978-1-80071-323-9

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Book part
Publication date: 9 November 2004

Alexander M.G. Gelardi

Governments often encourage charitable giving through the tax system, by a deduction or tax credit. In 1988, Canada moved from a deduction system to a tax credit system…

Abstract

Governments often encourage charitable giving through the tax system, by a deduction or tax credit. In 1988, Canada moved from a deduction system to a tax credit system. The tax credit for donations above $250 was calculated at the highest tax rate, even if the taxpayer was at the lowest tax rate. This gives what can be called a “superdeduction.” At the same time, the top rate of tax was reduced. Thus, the cost of giving was reduced for the lower taxpayers and increased for the higher-income taxpayers.

The article reports whether taxpayer behavior changed from 1986 (pre reform) to 1988 and 1992 (post reform). The analysis also investigates the influence of inflation on the charitable donations. The percentage of taxpayers giving over $250 was analysed for both all the taxpayers and those consistently in the low and high tax brackets. The lower-income taxpayers were found to reduce their giving, contrary to expectations. The middle-income taxpayers, in general, increased their giving, which was expected and so took advantage of the superdeduction. The results of the moderate high-income taxpayers were mixed. Taxpayers who had very high incomes decreased their giving, as was expected.

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Advances in Taxation
Type: Book
ISBN: 978-0-76231-134-7

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Book part
Publication date: 26 November 2020

Orsetta Causa and Mikkel Hermansen

This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is…

Abstract

This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes (PIT), employees’ social security contributions, and cash transfers, based on household-level micro-data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity, and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while PIT played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.

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Inequality, Redistribution and Mobility
Type: Book
ISBN: 978-1-80043-040-2

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