Measuring Tax Progressivity in Low-Income Countries

In addition to raising revenue, tax systems have a key role to play in achieving countries’equity goals. An important first step in assessing whether a particular tax system is appropriately supporting thoseequity goals is to assess the degree of progressivity of the tax system. However, measuring the progressivity of a taxsystem is challenging for several reasons. Most significantly, data limitations have a large impact on whattaxes can be examined, what measurement approaches can beadopted to examine those taxes, and how reliable those approaches are likely to be. This is particularly importantfor low-income countries where data limitations are typically most significant. Furthermore, there is no singledefinition of progressivity, or single method for measuring the degree of progressivity of a tax—thereby necessitating arange of decisions and value judgements to be made in any analysis. This paper examines and assesses the potentialapproaches that may be adopted to measure the progressivity of tax systems, and proposes a set of metrics to assess taxprogressivity in low-income International Development Association (IDA) countries.