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Personal Income Taxation in a Context of a Tax Structure (WOS:000345439100078)

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The paper examines importance and disparities of personal income taxation in a context of a tax structure. The attention is focused on single worker taxation with the average wage in 21 selected European countries, OECD as well as the European Union members. Importance of personal income taxes is not only in their financial contribution to the public budgets (in average, personal income taxes are the second most important source of tax revenues in line with Eurostat tax classification), but also in their impact on other government policies and goals (e.g. an economic growth, a redistribution, country's competitiveness, a functioning of labour markets or fiscal federalism) at the same time. Finally, paper explores relation between PIT share on total taxation and average PIT rate for a single worker with the average wage. Results indicate that increasing PIT share on total taxation by 1 p.p. increases the PIT rate by 0.57 percentage point. It confirms the importance of PIT rates for total tax revenues. Paper uses standard scientific method, e.g. description, comparison, analysis, synthesis. The OECD wage database, “Taxes in Europe” database and national statistical offices are the main data sources.
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Procedia Economics and Finance 12 ( 2014 ) 662 – 669
2212-5671 © 2014 Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of the Organizing Committee of ECE 2014
doi: 10.1016/S2212-5671(14)00391-8
ScienceDirect
Enterprise and the Competitive Environment 2014 conference, ECE 2014, 6–7 March 2014, Brno,
Czech Republic
Personal income taxation in a context of a tax structure
Irena Szarowská
*
Silesian University in Opava, Univerzitni nam. 1934, 73340 Karvina, Czech Republic
Abstract
The paper examines importance and disparities of personal income taxation in a context of a tax structure. The attention is
focused on single worker taxation with the average wage in 21 selected European countries, OECD as well as the European
Union members. Importance of personal income taxes is not only in their financial contribution to the public budgets (in average,
personal income taxes are the second most important source of tax revenues in line with Eurostat tax classification), but also in
their impact on other government policies and goals (e.g. an economic growth, a redistribution, country´s competitiveness, a
functioning of labour markets or fiscal federalism) at the same time. Finally, paper explores relation between PIT share on total
taxation and average PIT rate for a single worker with the average wage. Results indicate that increasing PIT share on total
taxation by 1 percentage point increases the PIT rate by 0.57 percentage point. It confirms the importance of PIT rates for total
tax revenues. Paper uses standard scientific method, e.g. description, comparison, analysis, synthesis. The OECD wage database,
“Taxes in Europe” database and national statistical offices are the main data sources.
© 2014 The Authors. Published by Elsevier B.V.
Selection and/or peer-review under responsibility of the Organizing Committee of ECE 2014.
Keywords: Personal income tax; tax structure; single worker taxation; taxation of average wage; competitiveness
1. Introduction
Personal income taxes are important source of public revenues as currently revenues from personal income taxes
accounted nearly a quarter of total taxation on average, namely 24 % in OECD countries (OECD, 2013a) and 21 %
in EU-27 (European Commission, 2013b). The tax structure is a very important aspect of the concept of the quality
of taxation. It deals with the design of tax policy to achieve desired policy objectives, while at the same time
* Corresponding author. Tel.: +420-596-398-215.
E-mail address: szarowska@opf.slu.cz
© 2014 Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of the Organizing Committee of ECE 2014
Available online at www.sciencedirect.com
663
Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
promoting economic growth, minimizing distortions and reducing the cost of tax collection (Lee and Gordon, 2005).
With tax burdens differentiated by earnings level and family situation, they serve a central role as redistribution
policies (Cordes and Juffras, 2012). Importantly, by shaping both work incentives and the cost of labour, the level
and structure of these taxes are major influences on the functioning of labour markets (Feld and Kirchgässner, 2003
or Brys, 2011). As personal income taxes contribute significantly to the overall tax burden on a labour, it is also
relevant factor of international competitiveness (Paturot et al., 2013 or Szarowská, 2013). When subnational
governments have tax competence to setting the PIT rates, it is clearly the most important aspect of their fiscal
sovereignty (Yilmaz et al., 2012). Ability to set tax rates allows subnational governments to choose the level of
public services while minimizing the compliance costs associated with collecting the required revenues.
Albeit personal income taxation is fully within the competence of the individual countries even in the European
Union, its evolution over time is issue that feature prominently in the political debate.
The aim of the article is to examine disparities in personal income taxation with emphasis on single worker
taxation with the average wage in 21 selected OECD as well as the EU members. The attention is also focused on
the importance of the personal income taxes in a tax structure.
2. Theoretical background
The primary goal of taxation is to transfer resources from one group to another one to achieve certain
development objectives without jeopardizing economic goals. Equity in taxation has both horizontal and vertical
components. Horizontal equity is present when there is equal tax treatment of taxpayers who have equal capability to
pay taxes. Vertical equity concerns the proper relationship between the relative tax burdens paid by individuals with
different capacity to pay taxes. There is no formula for setting the proper degree of progressivity of taxation. It
depends on factors such as the degree of inter individual solidarity in a society or the degree of shirking by potential
recipients of transfers. From this point of view is necessary to always compare and examine the same groups of
taxpayers. This article is focused on a single worker without children and related benefits and bonuses.
Taxes are traditionally classified as direct (personal income taxes, corporate income taxes and other income and
capital taxes) or indirect (VAT, excise duties and consumption taxes, other taxes on products and production).
Generally, the first group allows greater redistribution as it is impractical to introduce progressivity in indirect taxes
(Musgrave and Thin, 1948). Therefore, the recourse to direct taxes, which are more 'visible' to the electorate, tends
to be greater in the countries where tax electorate, tends to be greater in the countries where tax redistribution
objectives are more pronounced; this usually results also in higher top personal income tax rates. While
policymakers cannot directly adjust the tax burden of income, but they can reform the statutory elements of the tax
system, which ultimately determine average and marginal tax rates (Torres et al., 2012).
When examining personal income taxation, it is necessary to point out differences in defined terms and used data.
Table 1 reports category of taxes used in different international classification, namely in these data sources:
x OECD classification
x System of National Accounts (2008 SNA);
x European System of Accounts (1995 ESA);
x IMF Government Finance Statistics Manual (GFSM2001).
Table 1. Comparison of the international classification of taxes
OECD Classification
2008 SNA
1995 ESA
GFSM 2001
1000 Taxes on income, profits and capital gains
1100 Individuals
1110 Income and profits
D51-8.61a
D51A
1 111
1120 Capital gains
D51-8.61c,
d D51C, D
1 111
1200 Corporations
1210 Income and profits
D51-8.61b
D51B
1 112
664 Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
1220 Capital gains
D51-8.61c
D51C
1300 Unallocable as between 1100 and 1200
Another theoretical difference is in a method to estimate the allocation of the personal income tax. Most countries
basically multiply individual income tax payments by proportions of the selected income sources in the total
taxpayer's income (Belgium, Denmark, Germany, France, the Netherlands, Ireland, Luxembourg, Finland and
Sweden). This is done both by way of micro-simulation models relying on samples from the total taxpayer
population and by way of use of exhaustive tax return data sets (e.g. Belgium and Ireland). The corresponding
estimates obtained at the taxpayer level are consequently aggregated to obtain estimates of the personal income tax
raised in respect of the selected sources of income. For example, the total amount of personal income tax raised in
respect of labour income, PIT could be estimated as follows:
ܲܫܶ σ
൰כܲܫܶσݓ௝כܲܫܶ (1)
where Wj measures the labour income of the j-th taxpayer in a sample of individuals (j = 1, …, n) and where PITj
measures the personal income tax payment of the j-th taxpayer on his total taxable income Yj. The above equation
(1) therefore measures the total personal income tax raised on labour income as a weighted average of each
individual taxpayer's payment PIT, with the weights wj = (Wj/Yj) attached to these individual payments reflecting
the distribution of total wages and salaries across taxpayers.
As shown in Table 2, in some countries (Spain, Italy and Greece) instead use tax return data that is aggregated at
the level of a number of income classes or income tax brackets (j = 1, …, n), but essentially make the same
calculations. The latter approach is likely to capture broadly comparable effects of the differences in tax treatment
and the distribution of income sources across different groups of taxpayers.
Table 2. Methods to estimate the allocation of the personal income tax
Countries
Data
Basic method
BE, DE, DK, FI, FR, HU (from
2009), IE, LU, NL, PL, SE, SI
Data set of individual taxpayers
PIT payments multiplied by fractions of net taxable income sources (as
percentage of the total tax base) at the level of the individual taxpayer
UK
Data set of individual taxpayers
Income source specific income tax rates multiplied by net taxable
income sources at the level of the individual taxpayer
EL, ES, IT
Income class data based on data
set of individual taxpayers
PIT payments multiplied by fractions of net taxable income sources (as
percentage of the total tax base) at the level of income classes/tax
brackets
AT, CZ, EE, HU (before 2009),
PT
Tax receipts from withholding
and income tax statistics
Approach using aggregate withholding tax and final assessment income
tax data with certain adjustments.
Countries as Austria or Portugal choose another approach and use tax receipts data from the wage (withholding)
tax and (final) income tax statistics and apply a number of adjustments. Wage (withholding) tax is by its very nature
designed to approximate the final income tax liability for wage earners as closely as possible, but in some cases
there are certain adjustments for income tax assessments, because the wage tax withheld is not correct (e.g. because
of different jobs or pensions during a single year). As this correction concerns only wage earners, in some cases the
net amount of the correction is deducted from the total amount of recorded wage tax and, the amount of personal
income tax is adjusted accordingly. Since wage tax can also be levied on social benefits (e.g. unemployment
benefits, widower's benefits and invalidity benefits) or old-age pensions, the recorded wage tax is adjusted
accordingly. The (adjusted) personal income tax is further split between income from self-employed businesses and
capital income, either using aggregate proportions or information aggregated at the level of income classes
(Austria). The latter approach is also likely to capture broadly comparable effects of the differences in tax treatment
and the distribution of income sources across different groups of taxpayers as outlined above. Finally, Hungary
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Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
(from 2009 onwards) uses a combination of micro simulation and a correction on the aggregate figures from the
micro simulation model.
While in most countries the personal income tax system is comprehensive in the sense that all subcategories of
taxable income are pooled at the individual level, and the result is taxed at ascending statutory tax rates. However,
some countries apply a given statutory rate on a specific income category, as can occur under a 'dual income tax'
system. In the Netherlands, Finland and Sweden, for example, capital income is currently taxed at a relatively lower
statutory rate as compared to other earned income. In most cases, however, the tax receipts data are used to isolate
the amount of tax collected on that particular income category. In Slovenia, capital income is taxed according to a
flat rate while active income is taxed according to a progressive rate. In the United Kingdom, the personal income
tax law actually prioritises the order of different types of income. For example, labour income is treated as the
bottom of the taxable income and dividend income is treated as the top slice of taxable income. Unlike the method
used in other countries, the United Kingdom calculation therefore does not assume that the individual taxpayer has
the same average effective income tax rate over all income sources (see also above). Instead, income source specific
income tax rates are multiplied by the selected income sources at the taxpayer level.
Finally used terms should be defined. The article explores average rate of personal income tax (PIT). It is amount
of income tax payable after accounting for any reliefs calculated on the basis of the tax provisions divided by gross
wage earnings.
3. Used data
The goal of the article is to examine personal income taxation with emphasis on a single worker taxation and on
taxation of average wage in selected European countries. The empirical estimation is performed for 21 OECD and
EU member states, namely Austria (AT), Belgium (BE), Czech Republic (CZ), Denmark (DK), Estonia (EE), FI
(Finland), FR (France), Germany (DE), EL (Greece), Hungary (HU), IE (Ireland), IT (Italy), Luxembourg (LU),
Netherlands (NL), Poland (PL), Portugal (PT), Slovakia (SK), Slovenia (SI), ES (Spain), Sweden (SE), and United
Kongdom (UK). The analysis is based on annual data in a period 19952012 or in year 2012(it is the latest year with
available data). The OECD wage database and Eurostat “Taxes in Europe” database are the main data sources.
It is assumed that annual income from employment is equal to a given ratio of the average full-time adult gross
wage earnings for each economy; it is referred to as the average wage (AW). This covers both manual and non-
manual workers for either industry Sectors C-K inclusive with reference to the International Standard Industrial
Classification of All Economic Activities or industry Sectors B-N inclusive with reference to the International
Standard Industrial Classification of All Economic Activities (for details look at OECD, 2013b).
4. Results
As mentioned, tax structures are measured by the share of major taxes in total tax revenue. While, on average, tax
levels have generally been rising, the share of main taxes in total revenuesthe tax structure or tax mix has been
remarkably stable over time. Although revenues from personal income taxes fell to 24 % of total taxes on average in
2012 compared with 30 % in the mid-1980s, they are still the second most important tax source (the main is SC).
Fig.1 presents percentage share of major tax categories on total tax revenue in selected countries in 2012 (it is the
latest year with available data). Figure depicts following groups of taxes: direct taxes divided into personal income
tax (PIT), corporate income tax (CIT) and other direct taxes (Dto), social contributions (SC) and indirect taxes
(IndT) in line with classification of European Commission (2013). Countries are sorted by the PIT share on total
taxation from the smallest to the highest value.
Generally, examined countries have a different structure of tax revenues (tax mix). In particular, while most
countries raise roughly equal shares of revenues from direct taxes, indirect taxes, and social contributions, especially
the new EU member states, typically display a lower share of direct taxes in the total (see Fig.1). The disparities are
in percentage share of PIT on total taxation as well. The percentage share varies from the 8.3 % of the total tax
revenues in the Slovak Republic to the 50.6 % of the total tax revenues in Denmark. Very low shares on personal
income taxes are recorded also in the Czech Republic (10.8 %) and Hungary (13.2 %). All of these countries (SK,
CZ, HU) have adopted flat rate systems, which typically induce a stronger reduction in direct than indirect tax rates.
666 Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
Fig. 1. Share of major tax categories in total tax revenue in 2012.
The Nordic countries (FI, SE, DK) as well as Belgium and Ireland have relatively high shares of personal income
taxes (and generally direct taxes) in total tax revenues. Finland collects 29.4 % of total tax revenues from PIT,
Sweden 33.8 % and Belgium 28.2 %. The noticeable increase is evidenced in Ireland (32 % in 2012 instead of
26.9 % in 2012), this increase can be attributed to developments in public debt and financing liabilities related to the
banking sector.
As results from many studies (e.g. Paturot et al., 2013), personal income taxes contribute significantly to the
overall tax burden on a labour, and it is relevant factor of international competitiveness. Fig. 2 shows that the tax
wage concerning total labour costs to the employer and the corresponding net take-home pay for the average single
workers varied between Belgium (56 %) and Ireland (26 %) in 2012. The tax wage was around 50 % in France
(50.2 %), Germany (49.7 %) and Hungary (49.4 %), and under 40 % in the Slovak Republic (39.6 %), the
Netherlands and Denmark (both 38.6 %), Portugal (36.7 %), Luxembourg (35.8 %), Poland (35.5 %) and United
Kingdom (32.3 %). The average tax wage was 41.8 % of total labour cost in a whole group of selected countries in
2012 (column AV).
Fig. 2. The components of the tax wage as a % of labour costs in 2012.
The percentage of labour costs paid in personal income tax varies considerably within chosen countries. The
lowest are in Poland (5.8) and the Slovak Republic (7.4 %). The highest values are in Denmark (36.2 %), followed
by Belgium (22.1 %). The percentage of labour costs paid in employee social security contributions also varies
widely ranging from 2.7 % in Denmark and 2.9 % in Ireland to 19 % in Slovenia. There is a specific reason for the
extremely low share of social contributions in Denmark: most welfare spending is financed out of general taxation.
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Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
This requires high direct tax levels and indeed the share of direct taxation to total tax revenues in Denmark is by far
the highest in the European Union.
Employers in France pay 30.6 % of total labour costs in social security contributions, the highest amongst chosen
countries. The corresponding figures are also more than 20 % in next countries - Austria, Belgium, the Czech
Republic, Estonia, Greece, Hungary, Italy, the Slovak Republic, Spain and Sweden. As a percentage of labour costs,
the total of employee and employer social security contributions exceeds one-third of total labour costs in seven
countries: Austria, Belgium, the Czech Republic, France, Germany, Greece and Hungary (OECD, 2013b).
It is important to remind that average personal income taxes are considerably influenced by the system of basic
tax allowances and tax credits as well as the system of income progressivity. First, the progressivity of the PIT
depends on the progressivity of the statutory PIT rate schedule, which depends on the number and width of the tax
brackets and on the difference between the tax rates and especially between the top and bottom tax rate. Second, the
progressivity also depends on the specific design of PIT provisions that reduce the taxpayer’s tax liability.
Provisions can take the form of allowances, deductions, exemptions and credits and may depend on the level of
income (e.g. in-work tax credits and other make-work-pay provisions) and/or specific family characteristics (e.g. the
number of children, a dependent spouse, etc.). Third, flat rates tend to reduce the progressivity of the tax system.
Table 3 shows personal income tax and the gross wage earnings of the average worker in analyzed countries for
2012. To have comparable data, presented results are calculated for the average wage (AW) and its different levels.
Table 3. Personal income tax on gross income (single worker)
AW
national
currency
AW in USD
based on
PPP
share PIT
Ranking
PIT rate
67 %
AW
Ranking
PIT rate
100 %
AW
Ranking
PIT rate
167 %
AW
Ranking
AT
40 855
48 187
23.17
13
9.9
10
15.9
11
22.9
11
BE
46 065
53 047
28.19
17
22.4
20
28.8
20
35.5
20
CZ
300 421
21 793
10.79
2
7.7
7
11.8
6
15.1
3
DE
44 811
56 058
21.76
11
11.8
11
17.5
15
22.3
10
DK
392 456
49 887
50.64
21
14.2
14
19.2
17
27.8
14
EE
10 950
19 866
16.14
7
33.4
21
36.2
21
43.4
21
EL
20 086
28 846
14.65
5
14.8
15
21.8
19
29.0
18
ES
25 558
36 162
23.38
14
6.4
6
11.0
5
16.7
5
FI
41 478
44 148
29.41
18
15.4
17
17.1
14
18.4
8
FR
36 673
42 494
17.90
8
4.6
1
8.9
2
15.4
4
HU
2 749 566
20 875
13.26
3
12.6
12
14.6
7
20.9
9
IE
32 626
39 042
31.99
19
16.0
18
16.5
12
18.0
7
IT
28 908
36 563
27.07
15
8.7
9
14.8
8
28.0
15
LU
51 312
54 211
22.18
12
17.2
19
21.3
18
28.3
16
NL
46 418
55 640
20.94
10
7.9
8
15.5
9
23.8
13
PL
38 910
20 591
13.77
4
5.1
3
16.6
13
28.8
17
PT
15 720
25 341
18.53
9
5.8
4
6.8
1
7.6
1
SE
387 294
43 685
33.83
20
5.9
5
9.4
3
12.3
2
SI
17 227
26 793
14.98
6
15.1
16
17.9
16
30.4
19
SK
9 821
18 511
8.83
1
4.9
2
10.7
4
17.8
6
UK
35 883
52 720
27.89
16
13.2
13
15.5
10
23.1
12
The average share of PIT on total tax revenues is 22.35 % and it varies from 8.83 % in the Slovak Republic to
50.64 % in Denmark. Notable differences are in the PIT value corresponding to the average wage taxation. The PIT
668 Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
rate varies very substantially within the chosen countries, ranging from a minimum of 6.8 % in Poland to a
maximum of 36.2 % in Denmark. The lowest rates are observed in Greece (8.9 %), the Slovak Republic (9.4 %),
Portugal (10.7 %), Slovenia (11 %) and in the Czech Republic (11.8 %). The average PIT is 16.56 % in a whole
group. Very high rates are detected in Italy (21.3 %), Finland (21.8 %) and Belgium (28.8 %). Table 3 also brings
PIT for 67 %, 133 % and 167 % of the average wage. Obtained values express progressivity of PIT and results
mostly from applied number and width of the tax brackets and on the difference between the tax rates and especially
between the top and bottom tax rate. The biggest difference between PIT rates is noticed in Greece and the United
Kingdom. As was already mentioned, personal income taxation is often used as a tool of redistribution policy. It is
obvious that the impact from cash benefits on progressivity tends to be stronger at low and middle income levels.
Detailed analysis of PIT progressivity will be subject of a future paper.
Fig. 3. Relation between share PIT on total taxation and PIT in % (single worker, average wage).
Finally, the intent of the paper is to find relation between PIT share on total taxation and average PIT rate for a
single worker with the average wage. As known, total tax revenues are mostly influenced by the tax rate and the tax
base. Fig. 3 indicates that increasing PIT share on total taxation by 1 percentage point increases the PIT rate by 0.57
percentage point. Coefficient of determination (R2) is relatively high (0.66) due to expected impact of a tax base. It
confirms a key importance of PIT rates for a total tax revenues and a position of personal income taxation in a tax
mix.
5. Conclusion
The goal of the article was to examine importance of personal income taxation in a context of a tax quota and
with emphasis on single worker taxation with the average wage in selected European countries. The empirical
estimation was performed for 21 OECD and EU member states, annual data were taken from OECD wage database,
Eurostat online database “Taxes in Europe” and national statistical offices.
Importance of personal income taxes is not only in their financial contribution to the public budgets (personal
income taxes are the second most important source of tax revenues in line with Eurostat tax classification), but also
in their impact on other government policies and goals (e.g. an economic growth, a redistribution, country’s
competitiveness, a functioning of labour markets or fiscal federalism) at the same time.
Generally, examined countries have a different structure of tax revenues (tax mix). In particular, while most
countries raise roughly equal shares of revenues from direct taxes, indirect taxes, and social contributions, especially
669
Irena Szarowská / Procedia Economics and Finance 12 ( 2014 ) 662 – 669
the new EU member states, typically display a lower share of direct taxes in the total tax structure. Differences are in
percentage share of PIT on total taxation as well. The percentage share varies from the 8.3 % of the total tax
revenues in the Slovak Republic to the 50.6 % of the total tax revenues in Denmark. Very low shares on personal
income taxes are recorded also in the Czech Republic (10.8 %) and Hungary (13.2 %). These countries (SK, CZ and
HU) have adopted flat rate systems, which induce a stronger reduction in direct than indirect tax rates. Calculated
PIT rates for 67 %, 133 % and 167 % of the average wage prove progressivity of PIT and result especially from
applied number and width of the tax brackets and on the difference between the tax rates and the top and bottom tax
rate.
Finally, the paper explores relation between PIT share on total taxation and average PIT rate for a single worker
with the average wage. Results indicate that increasing PIT share on total taxation by 1 percentage point increases
the PIT rate by 0.57 percentage point. It confirms an importance of PIT rates for total tax revenues.
Acknowledgements
This paper was supported by the project “Innovation of Educational Programs at Silesian University, School of
Business Administration in Karviná” n. CZ.1.07/2.2.00/28.0017.
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... The results of the study showed a significant economic impact of tax incentives applicable in Lithuania. Szarowská (2014) points out that personal income taxation is often used as a redistribution policy tool. She argues that in the practice of taxation, the progressive impact of cash payments tends to increase with low-and middle-income levels. ...
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Personal income tax (PIT) is one of the most important taxes in Ukraine due to its economic, social and political role. With its help, one can regulate the investment process, the level of real incomes and maintain stability in society. However, the potential of this tax in Ukraine is not fully used. The purpose of the study is to identify the main problems of PIT and further directions of its implementation as an instrument of social policy. Laffer’s tax theory, on the dependence of economic efficiency of taxation on lower tax rates and the degree of progressiveness of taxes, was taken as a conceptual line of research. Consideration of world trends in the practice of PIT allowed tracing its evolution and choose the methods of its optimization that are acceptable for Ukraine. The use of comparative and statistical analyses, grouping, structural modeling method, index method and systematization of results allowed formulating the author’s version of the income taxation reform in Ukraine. The introduction of a progressive taxation scale should take into account the quality of tax administration, the availability of tax benefits, deductions and loans, the amount of fines, and public perception of the tax system in addition to quantitative results. The proposed family taxation, based on the differentiation of taxpayers by their marital status, actual solvency through the introduction of family rates and the establishment of progressive rates of personal income tax, will fully implement the principle of social justice in the distribution of income.
... Similar results were obtained by other authors [41,42] that highlighted the importance of personal income taxes to public budgets and other government policies such as economic development, country's competitiveness, and sustainable growth. However, there are studies that showed that the increase of the social contribution rate can lead to a decline in labor participation and jeopardize budget revenues and fiscal sustainability [43]. ...
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Social protection systems are a key factor for ensuring the long-term sustainability and stability of economies in the European Union, their reform being nowadays present in the political agenda of member states. Aging and the dependence on mandatory levies applied to the employed population on the labor market represent a threat for the sustainability of public social protection systems. In terms of sustainability, our purpose was to highlight the factors influencing social insurance budgets, considering the fiscal policies implemented in six countries of Central and Eastern Europe and their particular labor market characteristics. Therefore, a panel study based on a regression model using the Ordinary Least Squares method (OLS) with cross section random effects was used to determine the correlations between funding sources and labor market specific indicators. The data analyzed led to relevant results that emphasize the dependence of social insurance budgets on positive factors such as the average level of salaries, the share of compulsory social contributions, the unemployment rate, and the human development index, suggesting the continuing need for professional and personal development of the workforce.
... Income taxation has been considered in a number of other Russian and foreign publications. Based on the empirical assessment of the income taxation in 21 EU and OECD member countries,Szarowská (2016), emphasizes its fiscal importance and effetcs on government policies.Australian scientists adhere to a similar point of view. They emphasized a crucial role of income taxation in resource allocation, income redistribution and macroeconomic stabilization(Tran-Nam, Vu, & Andrew, 2007). ...
... Так, Л. Задорожня, досліджуючи регуляторну ефективність PIT, стверджує, що за допомогою цього податку можна впливати на економічне зростання, продуктивність праці, офіційну зайнятість, безробіття, соціальні виплати, перерозподіл доходів, тіньову економіку, пропозицію праці, вибір місця проживання, людський капітал та зменшення нерівності [1, с. 33; с. 38]. І. Сжаровська [2] переконує, що PIT є дуже складним і дієвим інструментом регулювання доходів, а оподаткування їх певних видів забезпечується регулятивною ефективністю цього податку. Розглядаючи прогресивну та пропорційну системи оподаткування PIT, Е. Бікас [3] стверджує, що прогресивна система ПУБЛІЧНІ ФІНАНСИ дає змогу зменшити розшарування суспільства на багатих і бідних. ...
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Introduction. In the current conditions of the integration movement of Ukraine to the European Union and the reform of the institutions of state power, the issue of studying foreign experience of the system of taxation of individuals' incomes is actualized. The application of effective practices of other states will contribute to increasing the fiscal role of the personal income tax in Ukraine, reducing social inequality and increasing the welfare of the population. Purpose. The purpose of the article is to find out the features, trends and problems of the functioning of the personal income tax in foreign countries. Results. The article deals with the foreign experience of functioning of the system of personal income taxation. The role and role of PIT in the EU and OECD countries is shown. The proportional and progressive approach to taxation of this tax is considered, their key advantages and disadvantages are determined. An analogy has been made between the European states, the OECD member states and Ukraine. The objective necessity of establishing a non-taxable minimum or partial exemption of citizens' incomes from taxes in the context of support of low-income categories of the population and ensuring social justice is substantiated. Conclusions. It is concluded that in developed countries, the progressive system of taxation of the PIT along with the minimum non-taxable minimum is an effective tool for generating budget revenues and solving social inequalities in society. Instead, third-world states can not use this mechanism in a qualitative way due to significant tax compliance problems. They apply a proportional taxation system for PIT that minimizes tax evasion and international competitiveness.
... The study additionally suggested that to simplify the overall procedures of income taxation in order to make greater compliance with the tax code. Szarowská (2014) Examined the inequality of PIT structure of 21 OECD countries applying regression model and found that if the PIT share of total taxation by 1% increases the PIT rate increases only by 0.57%. ...
Article
Purpose – This paper aims to evaluate the structure of the PIT in Nepal. Methodology/design/approach –This study adopts descriptive and quantitative research approach, sourcing the data and information from both primary and secondary, which include books, reports (economic survey, report/statement of Central Bureau of Statistics, etc.), journals, bulletins, newspapers, websites, etc. For the objective result, we use statistical tools to confirm the value of the PIT structure. Findings and conclusion – The PIT is a major ingredient of income tax, which contains a complex and critical structure in income components, exemption limit, tax base, units, and tax rates. The study found increment in the exemption limit based on equity, equality and with the rate of inflation. However, the method of determination of exemption limit was unscientific. The tax slabs and rates observed three categories progressive, digressive and mild progressive under the three governments regimes inconsistent with national tax policy. Different era of government imposed the tax burden on different slabs and observed decline in tax progressivity in the later year. In the studied period, the PIT payers sacrificed27.81% amount as tax and saved only 72.19% of their total taxable net earnings. It showed a high rate of tax. The tax burden on PIT reached as high as 45.49%in 1989-90 and as low as 24.13% in 1998-99. The gap between maximum and minimum ranged 22.89%, with a great disparity in the tax policy and an average tax, the burden remained 32.56% during the studied period. A high rate of tax encourages the evasion; taxpayers alter their decisions on the financial activities, which reduce the benefit of both the public authorities and taxpayers or citizens. Good tax policy should strive to provide benefit to both the concerned parties. Originality/value – This is descriptive research to find out the structure of Piton Nepal, which is derived and written by the author using the primary as well as secondary sources of data and information. Thus, this is original writing in the context of Nepal and in PIT literature.
... Nodokļu sistēmas taisnīgums tiek vērtēts ar terminu progresivitāte, ko raksturo nodokļu maksājumu un ienākumu salīdzinājums sabiedrības grupām pēc ienākumu līmeņa (Vanags, 2010). Pētījumā (Szarowska, 2014) secina, ka nav vienotas formulas, lai noteiktu vertikālā vai horizontālā taisnīguma pakāpi, jo tas ir atkarīgs no individuālās solidaritātes pakāpes sabiedrībā vai ienākumu saņēmēju izvairīšanās pakāpes no nodokļu maksāšanas. ...
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Personal income tax and social insurance contributions must be paid on wages into the budget, the revenue of which most directly affects the changes in the number of persons engaged in the national economy and the increase of the average wage. To be able to evaluate how favourable the personal income tax systems applicable to employees are in the Baltic States, the author compares the factors that affect taxation and the tax burden in Latvia, Lithuania and Estonia, which have experienced tax reforms in the recent years. The aim of the research is to perform a comparative study of the requirements and issues of personal income tax application to wages in Latvia, Lithuania, and Estonia. The monographic, comparative and analytical analysis, logical construction, and grouping methods have been used in the research study. Based on the research study, the author has concluded that despite the similarities in the personal income tax systems, each Baltic state has different normative regulation. The tax burden on Estonian taxpayers relative to wages is lower than that in Lithuania and Latvia.
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The reform of the tax system has always been a major concern for economists as well as a major challenge for policymakers. One of the main priorities of the Iranian tax system is to delve into consideration of obligatory religious payments (Khums) and charity in order to persuade people to pay taxes as well as to reduce tax burden. One of the suggestions have been offered in this field is to substitute Khums for the corresponding income taxes. Khums has a structure the same as tax on total income with a flat rate. In the present contribution, the economic effects of this suggestion were evaluated. The assessment of tax proposals is often studied by performing simulations. The present study evaluated and asserted the suggested changes in the personal income tax structure in Iran with the features of khums (rate unionization and its post-consumption) via the Dynamic Computable General Equilibrium Model and the Social Accounting Matrix 1390 (2011). The outcomes of the present study showed that the household savings have been declined over a 30-year period, while household consumption and expenses have increased at the same period of time. In other words, current consumption is preferable rather than saving for the future. In spite of increasing consumption, reduction in saving has resulted in lower investment, which ultimately it would cause a decrease in GDP.
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Further reforming of the Ukrainian tax system in order to improve the mechanism of personal income taxation (PIT) and filling local budgets points out the relevance of the research. The article considers the determinants of personal income tax as an important component of the tax system of Ukraine.The authors analyzed the PIT revenues to the consolidated budget of the country and identified a positive trend of its growth. Determinants and indicators of impact on PIT revenues are highlighted in the study. These factors are divided into following groups: economic, political and legal, demographic, socio-cultural and individual. The influence of main factors (GDP, Employment Rate, Inflation Rate, Average PIT Rate) on the PIT revenue component is considered.Regression and correlation analyses were performed using STATA program, and linear regression was calculated. In order to assess the dependence, countries were clustered according to key factors of their economic development for the period 2009—2019. According to the analysis results, it is determined that PIT revenues are closely dependent on the general macroeconomic situation in the country, and the average tax rate has a significant impact on its revenues.
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The complexity of today’s global economic environment increases importance of identifying and understanding the key factors affecting economic growth. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the European Union as financial and economic crisis has impacted also on tax systems. It is used the Eurostat´s definition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. The analysis is based on annual panel data of 24 EU member states in a period 1995-2010. Panel regression and Pairwise Granger Causality Tests are used as the main method of research. Results confirm, in line with the theory, statistically significant positive effect of consumption taxes and negative effect of labour taxes on GDP growth. In short-term, there is two-way causality between change of implicit tax rate of consumption and GDP growth and one-way causality between GDP growth and change of implicit tax rate of capital and implicit tax rate of labour.
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The tax burden on labour and its evolution over time are issues that feature prominently in the political debate. Averaged across the OECD, personal income taxes, social security contributions and payroll taxes together account for more than 51% of total government revenues in 2008 (OECD, 2010). With tax burdens differentiated by earnings level and family situation, they serve a central role as redistribution policies. Importantly, by shaping both work incentives and the cost of labour, the level and structure of these taxes are major influences on the functioning of labour markets...
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The impact of corporate income taxes on location decisions of firms is widely debated in the tax competition literature. Tax rate differences across jurisdictions may lead to distortions of firms’ investment decisions. Empirical evidence on tax-induced relocation and subsequent economic development in the US and Europe is still inconclusive. Much the same applies to Switzerland. While there is some evidence on personal income tax competition between Swiss cantons, evidence on the impact of intercantonal corporate income tax differences on the location of business within Switzerland is missing. In this paper, we present econometric evidence on the influence of corporate and personal income taxes on the regional distribution of firms in 1981 and 1991 and on cantonal employment using a panel data set of the 26 Swiss cantons from 1985 to 1997. The results show that corporate and personal income taxes deter firms to locate in a canton and subsequently reduce cantonal employment.
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This study analyzes the effects of right-wing extremism on the well-being of immigrants based on data from the German Socio-Economic Panel (SOEP) for the years 1984 to 2006 merged with state-level information on election outcomes. The results show that the life satisfaction of immigrants is significantly reduced if right-wing extremism in the native population increases. Moreover ; the life satisfaction of highly educated immigrants is affected more strongly than that of low-skilled immigrants. This supports the view that policies aimed at making immigration more attractive to the high-skilled have to include measures that reduce xenophobic attitudes in the native population. --
State and Local Governments: Why they Matter and How to Finance Them, in "The Oxford Handbook of State and Local Government Finance
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Yilmaz, S., Vaillancourt, F., Dafflon, B., 2012. State and Local Governments: Why they Matter and How to Finance Them, in "The Oxford Handbook of State and Local Government Finance". In: Ebel, R. D., Petersen, J. E. (Eds.) Oxford University Press, Oxford, pp. 105-136.
State Personal Income Taxes, in "The Oxford Handbook of State and Local Government Finance
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Brys, B., 2011. Wage Income Tax Reforms and Changes in Tax Burdens: 2000-2009. OECD Taxation Working Papers. Paris, France, paper #10. Cordes, J. J., Juffras, J. N., 2012. State Personal Income Taxes, in "The Oxford Handbook of State and Local Government Finance". In: Ebel, R. D., Petersen, J. E. (Eds.) Oxford University Press, Oxford, pp. 300-332.
Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries. OECD Taxation Working Papers
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Paturot, D., Mellbye, K., Brys, B., 2013. Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries. OECD Taxation Working Papers. Paris, France, paper #15.
Effects of Taxation by Economic Functions on Economic Growth in the European Union, 6th International Scientific Conference: Finance and the Performance of Firms in Science, Education and Practice
  • I Szarowská
Szarowská, I., 2013. Effects of Taxation by Economic Functions on Economic Growth in the European Union, 6th International Scientific Conference: Finance and the Performance of Firms in Science, Education and Practice. Tomas Bata University, Zlin, Czech Republic, pp. 746-758.