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
Subjects:	HJ Public Finance HJ2240 Revenue. Taxation
Online Access:	http://irep.iium.edu.my/70430/ http://irep.iium.edu.my/70430/ http://irep.iium.edu.my/70430/ 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

id	iium-70430
recordtype	eprints
spelling	iium-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
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
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/ http://irep.iium.edu.my/70430/ http://irep.iium.edu.my/70430/ 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
first_indexed	2023-09-18T21:39:59Z
last_indexed	2023-09-18T21:39:59Z
_version_	1777413075366838272

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

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