The effect of direct taxes on income and wealth distribution in Thailand under comprehensive income concept

Abstract

This thesis research comprises three studies, each of which investigates the inequality of income and wealth in Thailand from 1996 to 2017 and the impact of personal income tax and taxes on real estate on that inequality. Shorrocks Index decomposition technique is applied to examine the key drivers of inequality in the country in the first two studies. In the third study, the analysis is developed under the Heckman Selection Model to estimate the effect of personal income tax policy reform on the individual. The overall results demonstrate that accrued capital gains from asset ownership are the main drivers of income inequality, and that more than half of the total inequality stems from entrepreneurs. Personal income tax has very limited and diminishing redistributive impact due to the small tax base and the specifics of tax policy reforms, which broaden the tax base, but reduce the tax payers’ liabilities. Tax benefits are positively correlated with income, and professionals comprise the group that receives the greatest benefit. Inequality of real estate ownership is much higher than income inequality. The main source of inequality comes from high income households, particularly households in Bangkok Metropolis and other urban regions. Thus, land and building tax would raise more revenue for local government and reduce income inequality more effectively than have the previous taxes on real estate. Personal income tax benefits related to or dependent on level of income should be revised and made more restrictive. Additionally, the government should emphasize policies that promote savings and investment among low and middle income groups and provide equality in financial access to small entrepreneurs in order to help them thrive in the market. Land and building tax ought to be universally applied, and any exemptions to this tax should be granted to economically vulnerable groups.