IMF Working Papers

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 October 13, 2024

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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:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2022/020

  • Stock No:

    WPIEA2022020

  • ISBN:

    9798400201134

  • ISSN:

    1018-5941