The effects of Personal Income Tax on Income Inequality in Vietnam

Topics: Tax, Progressive tax, Income tax Pages: 38 (10272 words) Published: May 31, 2014


1. Abstract:
In each period of development, the government of a country always targets to build a stabilized society to all their citizens. Growing the economics and reducing the inequality, therefore, have been taken into thorough consideration. In order to achieve both aims at the same time, it requires a very detailed understanding of the relationship between economic growth and inequality. While some experts argue that, based on the Lewis type or Kuznets’s inverse U-shape arguments, an increase in inequality is unavoidable for economic development; others argue that a more equal income distribution may be necessary for sustainable economic growth based on the East Asian countries’ experiences. Some even argue that economic growth has nothing to do with income inequality based on the initial condition argument. Thus, taxes are produced as an important tool of the government to achieve the aim. With the success in income tax of Korea to deal with income redistribution, we try to investigate the relationship between growth and inequality based on Korea’s experiences during the last three or four decades. It is generally accepted that while Korea has experienced rapid economic growth during the past, Korea’s income distribution has improved or at least has not been consistently deteriorated until the early 1990’s. Korea’s experience was somewhat different from most of OECD countries, which faced a deteriorating income distribution during the last two decades even though the magnitude of the deterioration was quite diversified. The model of income tax policy in the republic of Korea is considered as an ideal model to various developing countries, especially Vietnam. With the background of Eastern people and culture, Vietnam and Korea share a number of common characteristics which turn out to be advantages when studying from the case of a developed country like Korea. Thus, analyzing the Korea’s success in reducing the inequality of distribution is a suggestion for Vietnam to the aim of sustainable development. 2. Research objectives:

The research comprises 3 purposes:
Give a foreground at the meanings and relationship between income tax and inequality in income distribution Analyze the case of The republic of Korea about income tax policy to reduce the gap in income distribution Understand the income tax policy in Vietnam, therefore, research the analysis about the case of Korea to propose some solutions to activate the ability of personal income tax in redistributing income. 3. Research subject and scope:

The subject of the research is income tax policy of Korea and Vietnam from the year of 2000 to the present 4. Research method
The research uses comparing, integrated, and statistical approach in order to understand deeply the contents of income tax policy of Korea. Furthermore, the research applies analyzing method to find out comments and evaluations which are appropriate in practice in Vietnam. 5. Research contents:

Apart from the introduction and conclusion, the research is performed in 3 chapters: Chapter 1: Theoretical framework
Chapter 2: Personal income tax policy in South Korea
Chapter 3: Lessons for personal income tax in Vietnam to enhance the equality of income distribution 6. Literature review:
Duclos and Tabi (1996) highlight Suits’ and Kakwani’s approach to tax progressivity measurement and classify their approach as a share based approach. In contrast tax progressivity measured by Suits’ index is simply related to the percentage of the tax burden paid by each of the tax payers of each income bracket. Duclos and Tabi then present a second approach to measuring tax progressivity that has more to do with redistribution of wealth and welfare. They proceed to describe what the purpose of progressive taxation by citing Vickrey (1947)...
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