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Dodatečné zdanění nejistých osobních příjmů v důsledku daňové progrese
[The penalty on risky personal income due to tax rate progression]

Author

Listed:
  • Jan Vlachý

Abstract

This paper analyzes the tax penalty on volatile personal income under progressive tax rates. The phenomenon may have an effect on long-term entrepreneurial decisions as well as risky occupational choice. An options-based model is used to estimate the expected effective rate due from tax-payers at different income levels and volatilities under the current Czech legislation. A comparison is made to the system which has been in place until 2005, as well as to the Slovak flat-rate schedule. The model shows that volatile incomes incur a substantial penalty of up to 2 percentage points on the effective rate peaking just below the official income statistics mean. The effect is more pronounced than under the former parameters of the tax code. A severe impact on below-average earners due to the mandatory minimum tax-base regulation has been demonstrated. On the other hand, the Slovak flat tax with a single marginal rate bears virtually no sensitivity to income volatility, with the slight exception of very low incomes.

Suggested Citation

  • Jan Vlachý, 2007. "Dodatečné zdanění nejistých osobních příjmů v důsledku daňové progrese
    [The penalty on risky personal income due to tax rate progression]
    ," Politická ekonomie, University of Economics, Prague, vol. 2007(5), pages 625-636.
  • Handle: RePEc:prg:jnlpol:v:2007:y:2007:i:5:id:616:p:625-636
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    More about this item

    Keywords

    income tax; option model; tax rate progression; personal income; income volatility; risk-taking; occupational choice;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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