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Personal Income Tax in Ireland: The Future of the Universal Social Charge

Author

Listed:
  • Peter McQuade
  • Sara Riscado
  • Stefano Santacroce

Abstract

Government plans to gradually but completely phase-out the Universal Social Charge, one pillar of the current personal income tax system, face an evident trilemma: how to continue to generate revenue and maintain progressivity without imposing distortionary high marginal tax rates? The brief first provides a detailed analysis of the main features of the Irish income tax system. Then, using the EUROMOD microsimulation model, it looks at the impact of alternative tax reforms, including on the distribution of disposable income. The brief does not advocate or prescribe any specific tax reform. Instead, the brief demonstrates the difficulty of designing a reform of the Irish income tax system that simultaneously reduces high marginal rates and is revenue neutral, without being regressive. Potential reforms might include a broadening of the tax base and the introduction of a third income tax band. However, the ultimate resolution to the tax trilemma could lie beyond the income tax system. More comprehensive, structural reforms could instead entail a shift toward other tax heads.

Suggested Citation

  • Peter McQuade & Sara Riscado & Stefano Santacroce, 2017. "Personal Income Tax in Ireland: The Future of the Universal Social Charge," European Economy - Economic Briefs 028, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecobri:028
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    More about this item

    Keywords

    Personal income taxation; tax reform; broadening of the tax base; progressivity; tax trilemma; simulation model; tax shift; McQuade; Riscado; Santacroce.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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