DISTRIBUTIONAL EFFECTS OF THE TAXES

In this chapter, we examine the distributional effects of the various taxes on taxpayers. Depending on the rate structure of various taxes and the shifting mechanism, taxes affect the horizontal and vertical equities. Progressive income taxation is considered to be superior to other taxes as to its effect on income dist¬ribution, because indirect taxes are regressive in nature. But, die existence of preferential tax treatment of capital gains, tax preferences and incentives and many types of loopholes the effective tax rate of income tax becomes a regressi¬ve one, as the size of the income increases, in addition to that, consumption taxes are applied at proportionate rate, but it's effective rate is also regressive. The other taxes such as payroll or social security taxes, wealth and property taxes are regressive taxes. Thus, the overall effect of the tax system adversely af¬fects the distributional goal of the society. However, in order to correct the regressivity of the taxation system, some measures have been taken in Western countries. For this reason, in this chapter we both study the effects of various taxes on taxpayers and corrective measures that reduces the regressivity of the taxes. Therefore, individual income tax, cor¬porate income tax, consumption taxes, social security taxes, wealth and property taxes are examined with respect to their distortive effects on income distribution. But, the effects of tax shifting will be studied in different chapter.