1. TAX POLICY IMPACT ON INCOME INEQUALITY IN LATVIA
Dr.oec. Māris Jurušs
Riga Technical University
6 Str. Kalnciema, Riga, Latvia
14-15 April, 2016, Daugavpils University

2. M.Jurušs Tax policy impact on income inequality in Latvia
15/04/2016
M.Jurušs Tax policy impact on income inequality in Latvia

3. M.Jurušs Tax policy impact on income inequality in Latvia
Introduction
Situation (2014)
The aim / objectives
GINI: 35.5 (EU: 30.9)
GDP: 2.4%
Unemployment: 10.8%
Emigaration
Total AVERAGE tax burden 29.2%
High tax burden on low incomes
Evaluate impact of tax policy on income inequality in Latvia
opinions of international experts
compare tax systems and income inequality in other countries
analyse tax burden of existing taxes on various groups of persons with different income level
find the best solutions
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M.Jurušs Tax policy impact on income inequality in Latvia

4. Review of the Literature
Reasons
Solutions
development of economic and living standard (OECD 2011)
enlargement of economic disparities (Piketty 2014)
labour market, globalization, oligarchy (Piketty 2013, Research Institute for Social Development 2011, Chomsky and McChesney 2011)
unfair tax policy (Rawls 2005, Kuznets 1950)
taxes must be based on the principles of equality, certainty, convenience and economy (Smith 1776)
consumption taxes create the regressive tax burden (Murphy 2010, Garfinkel, Rainwater, Smeeding 2006, Warren, Harding and Lloyd 2005)
progressive tax system can be based on the principles of vertical equity (Alink and Kommer 2011)
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M.Jurušs Tax policy impact on income inequality in Latvia

5. M.Jurušs Tax policy impact on income inequality in Latvia
Methods
1) The theory of consumption (Keynes 1936)
2) Assessment of consumption tax burden (Jurušs 1999)
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M.Jurušs Tax policy impact on income inequality in Latvia

6. M.Jurušs Tax policy impact on income inequality in Latvia
Results
Low income earners consum more = regessive VAT other consumption taxes
Different types of income have different tax rate = regressive labour taxes
Regressive total tax burden
Tax burden\Quintile
Group 1
Group 2
Group 3
Group 4
Group 5
VAT 12 9 8 7 6
Personal income tax and social contributions 21 20 19
Excise and other specific taxes 5 4 3
Total 39 35 31 27
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M.Jurušs Tax policy impact on income inequality in Latvia

7. M.Jurušs Tax policy impact on income inequality in Latvia
Discussions
VAT on food, %
Income tax rates, %
EUR
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M.Jurušs Tax policy impact on income inequality in Latvia

8. M.Jurušs Tax policy impact on income inequality in Latvia
Conclusions
Latvia has one of the highest income inequality in the EU
Significant impact to income inequality creates an unfair tax policy and inefficient system of revenue redistributions
Persons with low incomes have a higher consumption tax burden
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M.Jurušs Tax policy impact on income inequality in Latvia

9. M.Jurušs Tax policy impact on income inequality in Latvia
Solutions
reduced VAT on food
progressive income tax
Impact
partly equalized tax burden
reduced the tax burden for the first quintile group by more than 8%
Long term: reduced income inequality by 3%
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M.Jurušs Tax policy impact on income inequality in Latvia

10. Future? Thank you for attention!
Every taxpayer have to contribute to the state income to the same extent.
Every taxpayer has to be sure how much taxes he will have to pay.
Every tax should be collected at the time and in the manner that is most appropriate for the taxpayer.
Every tax should return to the society in the value similar to the value of the tax collected from the society
Adam Smith, The Wealth of Nations, 1776
Thank you for attention!
15/04/2016
M.Jurušs Tax policy impact on income inequality in Latvia