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

Authors:
Richard M. Bird at University of Toronto
Richard M. Bird
Eric M. Zolt at University of California, Los Angeles
Eric M. Zolt
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Abstract

Inequality has increased in recent years in both developed and developing countries. Tax experts, like others, have focused on how taxes may reduce this growing inequality of income and wealth. In developed countries, the income tax, and especially the personal income tax, has long been viewed as the primary instrument for redistributing income. This Article examines whether it makes 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 inequality, therefore, 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, the 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.
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... Tax amnesty programs are instrumental in addressing tax aggressiveness by providing a structured opportunity for voluntary correction of tax affairs. By offering a designated period for disclosure, these programs encourage taxpayers to reveal previously unreported income or assets, thereby reducing opportunities for aggressive tax planning and evasion (Bird and Zolt, 2004). However, the effectiveness of tax amnesty in reducing tax aggressiveness is debated, with studies showing mixed results. ...
... The long-term implications of tax amnesty on CSR objectives require careful consideration. Bird and Zolt (2004) argue that while tax amnesty may offer short-term financial relief, it should not be regarded as a sustainable solution for promoting ethical behavior or ensuring ongoing compliance. Companies must integrate tax amnesty within broader ethical frameworks to maintain stakeholder trust and avoid undermining CSR efforts. ...
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