Progress of the Personal Income Tax in Emerging and Developing Countries

By Dora Benedek, Juan Carlos Benitez, Charles Vellutini

January 28, 2022

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Dora Benedek, Juan Carlos Benitez, and Charles Vellutini. Progress of the Personal Income Tax in Emerging and Developing Countries, (USA: International Monetary Fund, 2022) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Corporate income tax, Income and capital gains taxes, Income tax systems, Personal income tax, Revenue administration, Taxes

Keywords: Corporate income tax, Emerging market economies, Global, Income and capital gains taxes, Income tax systems, Liability threshold, Low-income countries, Personal income tax, Personal income tax, PIT characteristic, PIT revenue, PIT revenue performance, PIT system, Progressivity, Redistribution

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/020
Stock No:

WPIEA2022020
ISBN:

9798400201134
ISSN:

1018-5941

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