The Elgar Guide to Tax Systems

The Elgar Guide to Tax Systems

Elgar original reference

Edited by Emilio Albi and Jorge Martinez-Vazquez

Tax systems have changed considerably in the past three decades. These fundamental changes have been the result of economic globalization, new political stances, and also of developments in public finance thought. The chapters in this volume offer a critical review of those changes from the perspectives of tax theory, policy and tax administration practice, and the political economy of taxation. The authors also consider what sort of reforms are worth undertaking in tax policy design, tax administration and enforcement, and the assignment of sub-national taxes.

Chapter 3: Individual Income Taxation: Income, Consumption, or Dual?

Robin Boadway

Subjects: economics and finance, public finance, law - academic, tax law and fiscal policy, politics and public policy, public policy


* Robin Boadway 1 INTRODUCTION The individual income tax constitutes, along with the value-added tax (VAT), the bulwark of the revenue-raising system for industrialized countries. While the VAT serves as an efficient revenue-raiser, the income tax is the main tax instrument used to achieve broader objectives of the tax-transfer system, such as distributive equity, equality of opportunity, social insurance, and social policy. Not surprisingly, given such diverse and value-driven objectives, the system can be both complex and controversial. This can be seen in the many aspects of income tax design that policymakers and tax specialists must assess and address. Some key ones include the following: 1. Choice of the base. At the most basic level, the individual tax base could include income broadly defined, it could be restricted to consumption, or it could include elements of both. The choice may be driven partly by matters of economic principle, such as efficiency, equity, and tax base mobility, or it may be driven by administrative necessity, such as measurability, collection and compliance costs, and possibilities for evasion. Social and other objectives. The individual tax may be used to contribute to objectives such as equal opportunity for children and for those capable of pursuing higher education, job market participation, and economic security. Behavioral incentives. Elements of the individual tax may be intended to influence the behavior of taxpayers in ways thought to be desirable, perhaps because of perceived market failures. For example, there may be tax incentives for retirement saving, home ownership, and/or post-secondary...

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