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Personal income tax reforms and income inequality in African countries

Working paper

Written by Kyle McNabb, Annalena Oppel

Working paper

This study sheds light on the potential of personal income tax (PIT) to address inequality in African countries. We employ new data on PIT design and reforms from the TaxDev Employment Income Taxes Dataset (EITD) alongside data on pre-tax income distributions from the World Inequality Database (WID) to model the redistributive capacity of PIT regimes in African countries, and the extent to which reforms to these regimes between 1995 and 2020 have affected this potential. We find that, on average across the study period, PIT could reduce inequality by around 4.1 Gini points in African countries if applied to the entire income distribution. However, after adjusting for informal incomes, this potential increases to around 4.7 Gini points. Focusing specifically on policy design, cross-country regressions show that the level of the top marginal PIT rate, and the point at which it is applied, matter most for its potential effects on inequality. Crucially, we find that PIT reforms over the period in question have, on average, lessened the redistributive capacity of PIT.