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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
Published: Technical University of Liberec 2018
Subjects:
HC Economic History and Conditions
HG Finance
Online Access:http://eprints.um.edu.my/22277/
https://doi.org/10.15240/tul/001/2018-4-006
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spelling my.um.eprints.222772019-09-06T06:30:19Z http://eprints.um.edu.my/22277/ The role of country governance on value-added tax and inequality Chan, Sok Gee Ramly, Zulkufly HC Economic History and Conditions HG Finance 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. Technical University of Liberec 2018 Article PeerReviewed Chan, Sok Gee and Ramly, Zulkufly (2018) The role of country governance on value-added tax and inequality. E+M Ekonomie a Management, 21 (4). pp. 79-93. ISSN 1212-3609 https://doi.org/10.15240/tul/001/2018-4-006 doi:10.15240/tul/001/2018-4-006
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
topic HC Economic History and Conditions
HG Finance
spellingShingle HC Economic History and Conditions
HG Finance
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.
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://eprints.um.edu.my/22277/
https://doi.org/10.15240/tul/001/2018-4-006
_version_ 1646210195242614784
score 13.211869

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