Tax Progressivity and Inequality in Brazil: Evidence from Integrated Administrative Data

Theo Palomo, Davi Bhering, Thiago Scot, Pierre Bachas, Luciana Barcarolo, Celso Campos, Javier Feinmann, Leonardo Moreira and Gabriel Zucman
Additional contact information
Theo Palomo: Paris School of Economics (PSE)
Davi Bhering: Paris School of Economics (PSE)
Thiago Scot: World Bank
Pierre Bachas: World Bank
Luciana Barcarolo: Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)
Celso Campos: Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)
Javier Feinmann: EU Tax Observatory
Leonardo Moreira: Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)
Gabriel Zucman: Paris School of Economics (PSE), UC Berkeley

No 9, Reports from EU Tax Observatory

Abstract: We use population-wide administrative micro-data to provide new estimates of income inequality and effective tax rates by income groups in Brazil, capturing all income and all tax payments. Our data allow us to link businesses to their owners and thus to allocate business income and associated taxes to the corresponding individual firm owners. We provide sharp upward revisions to official inequality estimates: the top 1% earns 27.4% of total income in 2019, one of the highest level recorded in the world. The tax system, which relies heavily on consumption taxes, is regressive: while the average tax rate in the economy is 42.5%, this rate falls to 20.6% for million-dollar earners (roughly the top 0.01% of the distribution), due to the non-taxation of dividends and provisions that reduce corporate tax liabilities. We provide evidence suggesting that inequality in developing countries may be systematically underestimated, as even in Brazil—where dividends are untaxed, and hence incentives to retain income within companies are limited—attributing profits to business owners substantially raises income inequality.

Keywords: Income inequality; effective tax rates; Brazil (search for similar items in EconPapers)
JEL-codes: D3 H2 H3 H5 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2025
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