Personal Income Tax Progressivity: Trends and Implications

Abstract

This paper discusses how the structure of the tax system affects its progressivity. It suggests a measure of progressive capacity of tax systems, based on the Kakwani index, but independent of pre-tax income distributions. Using this and other progressivity measures, the paper (i) documents a decline in progressivity over the last decades and (ii) examines the relationship between progressivity and economic growth. Regressions do not reveal a significant impact of progressivity on growth, suggesting that efficiency costs of progressivity may be small-at least for degrees of progressivity observed in the sample.

Keywords: Progressive taxation, Personal income taxes, Tax systems, Income inequality, Economic growth, Progressivity; Growth; Personal Income Tax; Tax Wedge; Inequality, Progressivity, Growth, Personal Income Tax, Tax Wedge, Inequality, Household

JEL Classification: H23, H31