CEU Electronic Theses and Dissertations, 2011
| Author | Benedek, Dora |
|---|---|
| Title | BEHAVIOURAL RESPONSE TO INCOME TAXATION A STUDY OF THE HUNGARIAN TAX SYSTEM |
| Summary | In the last few decades, there has been a growing literature on the behavioural effects of tax reforms. These studies measure the elasticity of taxable income (ETI) to changes in the marginal tax rate and find a significant positive effect. The ETI is especially important when governments reduce the tax rates substantially in order to boost their economic and tax revenues. Although there are signs that some countries do manage to improve on both fronts, it is hard to differentiate the behavioural response to tax changes from the effect of increased tax enforcement. This thesis addresses this gap by analysing the elasticity of taxable income both of employees and self-employed and by estimating the distribution of income underreporting throughout the total taxpayer population. The first chapter estimates the elasticity of taxable income in Hungary. Results suggest a relatively small but highly significant tax price elasticity of about 0.06 for the population earning above the minimum wage (around 70% of all taxpayers). This number increases to around 0.3 when we focus on the upper 20% of the income distribution, with some income groups exhibiting even higher elasticities (0.45). In the second chapter of this thesis, I analyse the elasticity of reported income to tax rates of the self-employed. The ETI captures several margins of adjustment. Most importantly, labour supply changes after tax reforms but taxpayers also adjust their income underreporting behaviour. Hungary introduced a new type of tax for small enterprises with a substantially lower tax rate. I use this tax reform to analyse the elasticity of the self-employed. The overall ETI of the self-employed is about twice as large as for the total employee population (12%). The third chapter of this thesis estimates the distributional implications of income tax evasion in Hungary. Tax evasion has serious implications for the income distribution, as it alters the disposable income of households through the altered payment of tax. In this exercise, gross incomes declared in the administrative tax returns are compared with incomes stated in a nationally representative household budget survey. Estimates show that the average rate of underreporting is 8-18%, but this conceals a big difference between the self-employed (who hide a greater part of their income) and employees. These rates are used in a tax–benefit microsimulation model to calculate the fiscal and distributional implications of underreporting. Tax evasion reduces households’ personal income tax payment by about 8–20%. Poverty and inequality seem significantly higher if calculations are based on true income rather than its reported figure. Finally, tax evasion greatly reduces the progressivity of the tax system. |
| Supervisor | Benczur, Peter |
| Department | Economics PhD |
| Full text | https://www.etd.ceu.edu/2011/benedekd.pdf |
Visit the CEU Library.
© 2007-2021, Central European University