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Redistributive effect of personal income taxation in Pakistan

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Author Info
Ahmed, Vaqar
O'Donoghue, Cathal

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Abstract

This paper studies the redistribution effect of personal income tax in Pakistan. We decompose the overall tax system in order to evaluate the contribution of rate, allowances, deductions, exemptions and credits. The structure given in Income Tax Ordinance, 2001, is applied to gross household incomes in 2002 (low growth year) and 2005 (high growth year). Our findings reveal that the reforms laid down in this Ordinance resulted in a greater redistribution of incomes. The redistributive effect increases as we move from 2002 to 2005 tax assessment. Deductions for salaried tax payers contribute the most towards progressivity. This is different from countries with advanced taxation systems relying mainly on allowances followed by tax rate and exemptions.

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File URL: http://mpra.ub.uni-muenchen.de/16700/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16700.

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Date of creation: 03 Jul 2009
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Publication status: Published in Pakistan Economic and Social Review 1.47(2009): pp. 1-17
Handle: RePEc:pra:mprapa:16700

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Related research
Keywords: Income Taxation; Microsimulation; Redistribution; Inequality;

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Find related papers by JEL classification:
D3 - Microeconomics - - Distribution
D6 - Microeconomics - - Welfare Economics
H2 - Public Economics - - Taxation, Subsidies, and Revenue

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pfahler, Wilhelm, 1990. "Redistributive Effect of Income Taxation: Decomposing Tax Base and Tax Rates Effects," Bulletin of Economic Research, Blackwell Publishing, vol. 42(2), pages 121-29, April.
  2. Richard Bird, 2008. "Tax Challenges Facing Developing Countries," International Studies Program Working Paper Series, at AYSPS, GSU paper0802, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
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  3. Sicat, Gerardo P & Virmani, Arvind, 1988. "Personal Income Taxes in Developing Countries," World Bank Economic Review, Oxford University Press, vol. 2(1), pages 123-38, January.
  4. Verbist G, 2004. "Redistributive Effect And Progressivity Of Taxes An International Comparison Across The EU Using EUROMOD," EUROMOD Working Papers EM5/04, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  5. N. Anders Klevmarken, 1997. "Behavioral Modeling in Micro Simulation Models. A Survey," Working Paper Series 1997:31, Uppsala University, Department of Economics. [Downloadable!]
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  6. Immervoll H & O'donoghue C, 2001. "Imputation Of Gross Amounts From Net Incomes In Household Surveys: An Application Using EUROMOD," EUROMOD Working Papers EM1/01, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
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  7. Bird, Richard M. & Zolt, Eric M., 2005. "The limited role of the personal income tax in developing countries," Journal of Asian Economics, Elsevier, vol. 16(6), pages 928-946, December. [Downloadable!] (restricted)
  8. Gerhard Wagenhals, 2004. "Tax-benefit microsimulation models for Germany: A Survey," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 235/2004, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
  9. Richard M Bird & Eric M Zolt, 2008. "Tax policy in emerging countries," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 26(1), pages 73-86, February. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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