Taxpayer response to greater progressivity: evidence from personal income tax reform in Uganda

Maria Jouste (), Tina Kaidu Barugahara, Joseph Ayo Okello, Jukka Pirttilä and Pia Rattenhuber
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Maria Jouste: UNU-WIDER
Tina Kaidu Barugahara: Uganda Revenue Authority
Joseph Ayo Okello: Uganda Revenue Authority
Jukka Pirttilä: University of Helsinki
Pia Rattenhuber: UNU-WIDER

International Tax and Public Finance, 2025, vol. 32, issue 4, No 7, 1177-1212

Abstract: Abstract The extent of redistribution in low-income developing countries, including in Africa, is very limited, which raises the question whether the tax rates of high-income individuals should be raised. A crucial parameter when considering a potential increase in progressivity is the response of taxable income to increased tax rates. In this paper, we evaluate a major personal income tax reform in Uganda that came into effect in 2012–2013, which increased the top tax rate by 10 percentage points. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting to other tax bases. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.

Keywords: Personal income tax; Uganda; Administrative data; Tax reform (search for similar items in EconPapers)
JEL-codes: C31 H24 O23 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-024-09861-w

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