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Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda

Author

Listed:
  • Maria Jouste

    (UNU-WIDER, Helsinki, Finland)

  • Tina Kaidu Barugahara

    (Uganda Revenue Authority, Kampala, Uganda)

  • Joseph Okello Ayo

    (University of Helsinki, Finland)

  • Jukka Pirttilä

    (University of Helsinki, Finland; and VATT Institute for Economic Research, Helsinki, Finland)

  • Pia Rattenhuber

    (UNU-WIDER, Helsinki, Finland)

Abstract

We evaluate a major personal income tax reform in Uganda that came into effect in 2012–13, contributing to the scarce literature on the effects of personal income tax reform on employees’ income in a low-income country in Africa. The reform increased the tax-free lower threshold, increased tax rates for higher incomes, and introduced an additional highest tax band for top 1% of income earners. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.

Suggested Citation

  • Maria Jouste & Tina Kaidu Barugahara & Joseph Okello Ayo & Jukka Pirttilä & Pia Rattenhuber, 2023. "Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda," Working Papers 13, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:13
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    References listed on IDEAS

    as
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    3. Bohne, Albrecht & Nimczik, Jan Sebastian, 2018. "Information Frictions and Learning Dynamics: Evidence from Tax Avoidance in Ecuador," IZA Discussion Papers 11536, Institute of Labor Economics (IZA).
    4. Dina Pomeranz & José Vila-Belda, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 755-781, August.
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    More about this item

    Keywords

    personal income tax; Uganda; administrative data; tax reform;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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