Progress of the Personal Income Tax in Emerging and Developing Countries

Dora Benedek, Juan Carlos Benitez and Charles Vellutini

No 2022/020, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Personal income tax; progressivity; redistribution; low-income countries; emerging market economies; PIT revenue performance; PIT system; liability threshold; PIT revenue; PIT characteristic; Personal income tax; Income tax systems; Corporate income tax; Income and capital gains taxes; Global (search for similar items in EconPapers)
Pages: 36
Date: 2022-01-28
New Economics Papers: this item is included in nep-cwa, nep-pbe and nep-pub
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