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Redistributive effect of personal income taxation in Pakistan

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  • Ahmed, Vaqar
  • O'Donoghue, Cathal

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.

Suggested Citation

  • Ahmed, Vaqar & O'Donoghue, Cathal, 2009. "Redistributive effect of personal income taxation in Pakistan," MPRA Paper 16700, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16700
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    References listed on IDEAS

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    Cited by:

    1. Haque, Nadeem & Ahmed, Vaqar & Shahid, Sana, 2011. "Reforms for competitive markets in Pakistan," MPRA Paper 33990, University Library of Munich, Germany.
    2. Ahmed, Vaqar & Wahab, Mohammad Abdul, 2011. "Foreign assistance and economic growth: evidence from Pakistan 1972 - 2010," MPRA Paper 30344, University Library of Munich, Germany.
    3. Muhammad Ashfaq Ahmed, 2017. "Pakistan: State Autonomy, Extraction, and Elite Capture—A Theoretical Configuration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(2), pages 127-162.

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    More about this item

    Keywords

    Income Taxation; Microsimulation; Redistribution; Inequality;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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