The role of country governance on value-added tax and inequality

Income inequality is a growing concern for regulators because it brings adverse consequences towards social stability, institutional stability and economic performance. One of the popular ways to reduce income inequality is through the implementation of Value Added Tax (VAT) despite of many criticis...

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Main Authors: Chan, Sok-Gee, Ramly, Zulkufly
Format: Article
Language:English
English
English
Published: Technical University of Liberec 2018
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Online Access:http://irep.iium.edu.my/70430/1/70430_The%20role%20of%20country%20governance.pdf
http://irep.iium.edu.my/70430/2/70430_The%20role%20of%20country%20governance_SCOPUS.pdf
http://irep.iium.edu.my/70430/3/70430_The%20role%20of%20country%20governance_WOS.pdf
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spelling my.iium.irep.704302019-02-01T03:00:46Z http://irep.iium.edu.my/70430/ The role of country governance on value-added tax and inequality Chan, Sok-Gee Ramly, Zulkufly HJ Public Finance HJ2240 Revenue. Taxation Income inequality is a growing concern for regulators because it brings adverse consequences towards social stability, institutional stability and economic performance. One of the popular ways to reduce income inequality is through the implementation of Value Added Tax (VAT) despite of many criticisms on its regressive nature. Hence, using a wide data range from 1984 to 2014, we study the impact of VAT on income inequality in both developed and developing countries. Besides, this is the fi rst study that seeks to focus on the moderating role of country governance in enhancing the effect of VAT on income inequality. We use the Generalized Method of Moments (GMM) to overcome the endogeneity, autocorrelation and heteroscedasticity issues. The results suggest that the VAT reduces income inequality but the positive effect is contingent upon the existence of a set of good country governance. Countries that have higher quality of bureaucracy, greater democratic accountability, high government stability, effective law and order, low political risk and favourable socioeconomic conditions stand to benefit more from the VAT system in terms of narrowing the income inequality. Therefore, we conclude that better institutions improve the tax collection and public service delivery, which is a crucial element in achieving the economic objective of narrowing the income gap between the wealthy and the poor. This is particularly true in developing countries. Further, the governments in developing countries need to effectively manage the degree of socioeconomic pressure that could distract them from implementing social and economic policies to eradicate poverty and raise the income level of the poor segment of society. © 2018, Technical University of Liberec. All rights reserved. Technical University of Liberec 2018 Article PeerReviewed application/pdf en http://irep.iium.edu.my/70430/1/70430_The%20role%20of%20country%20governance.pdf application/pdf en http://irep.iium.edu.my/70430/2/70430_The%20role%20of%20country%20governance_SCOPUS.pdf application/pdf en http://irep.iium.edu.my/70430/3/70430_The%20role%20of%20country%20governance_WOS.pdf Chan, Sok-Gee and Ramly, Zulkufly (2018) The role of country governance on value-added tax and inequality. E a M: Ekonomie a Management, 21 (4). pp. 79-93. ISSN 1212-3609 https://dspace.tul.cz/bitstream/handle/15240/124747/EM_4_2018_06.pdf?sequence=1&isAllowed=y 10.15240/tul/001/2018-4-006
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
English
English
topic HJ Public Finance
HJ2240 Revenue. Taxation
spellingShingle HJ Public Finance
HJ2240 Revenue. Taxation
Chan, Sok-Gee
Ramly, Zulkufly
The role of country governance on value-added tax and inequality
description Income inequality is a growing concern for regulators because it brings adverse consequences towards social stability, institutional stability and economic performance. One of the popular ways to reduce income inequality is through the implementation of Value Added Tax (VAT) despite of many criticisms on its regressive nature. Hence, using a wide data range from 1984 to 2014, we study the impact of VAT on income inequality in both developed and developing countries. Besides, this is the fi rst study that seeks to focus on the moderating role of country governance in enhancing the effect of VAT on income inequality. We use the Generalized Method of Moments (GMM) to overcome the endogeneity, autocorrelation and heteroscedasticity issues. The results suggest that the VAT reduces income inequality but the positive effect is contingent upon the existence of a set of good country governance. Countries that have higher quality of bureaucracy, greater democratic accountability, high government stability, effective law and order, low political risk and favourable socioeconomic conditions stand to benefit more from the VAT system in terms of narrowing the income inequality. Therefore, we conclude that better institutions improve the tax collection and public service delivery, which is a crucial element in achieving the economic objective of narrowing the income gap between the wealthy and the poor. This is particularly true in developing countries. Further, the governments in developing countries need to effectively manage the degree of socioeconomic pressure that could distract them from implementing social and economic policies to eradicate poverty and raise the income level of the poor segment of society. © 2018, Technical University of Liberec. All rights reserved.
format Article
author Chan, Sok-Gee
Ramly, Zulkufly
author_facet Chan, Sok-Gee
Ramly, Zulkufly
author_sort Chan, Sok-Gee
title The role of country governance on value-added tax and inequality
title_short The role of country governance on value-added tax and inequality
title_full The role of country governance on value-added tax and inequality
title_fullStr The role of country governance on value-added tax and inequality
title_full_unstemmed The role of country governance on value-added tax and inequality
title_sort role of country governance on value-added tax and inequality
publisher Technical University of Liberec
publishDate 2018
url http://irep.iium.edu.my/70430/1/70430_The%20role%20of%20country%20governance.pdf
http://irep.iium.edu.my/70430/2/70430_The%20role%20of%20country%20governance_SCOPUS.pdf
http://irep.iium.edu.my/70430/3/70430_The%20role%20of%20country%20governance_WOS.pdf
http://irep.iium.edu.my/70430/
https://dspace.tul.cz/bitstream/handle/15240/124747/EM_4_2018_06.pdf?sequence=1&isAllowed=y
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