Are Jamaica’s Direct Taxes on Labor “Fair”?

Abstract

The Government of Jamaica imposes a variety of taxes on the earnings of labor. Jamaica’s direct taxes and charges on labor income include the pay-asyou-earn (PAYE) income tax and five payroll taxes. In total, these taxes generate nearly one-third of the total tax revenues of the government in fiscal year 2002-2003, with the PAYE itself responsible for more than one-fifth of total revenues. This article uses unique micro-level data to analyze the vertical and, especially, the horizontal equity of these taxes. The authors find that the taxes are generally progressive in their overall pattern of incidence but that they also introduce significant horizontal inequities due to their uneven coverage and their many special provisions.

Keywords

tax incidence vertical equity horizontal equity micro-simulation model

Get full access to this article

View all access options for this article.

References

Alleyne, Dillon , James Alm , Roy Bahl , and Sally Wallace. 2004. Tax burden in Jamaica. Jamaican Tax Reform Project, Working Paper 9, Andrew Young School of Policy Studies, Georgia State University, Atlanta.

Alm, James , Roy Bahl , and Matthew N. Murray. 1991. Tax base erosion in developing countries. Economic Development and Cultural Change 39 (4): 849-872.

Alm, James , and Sally Wallace. 2004. Payroll taxes and contributions. Jamaican Tax Reform Project, Working Paper 6, Andrew Young School of Policy Studies, Georgia State University, Atlanta.

Angrist, Joshua D. 1996. Short-run demand for Palestinian labor. Journal of Labor Economics 14 (3): 425-453.

Auerbach, Alan J. , and Kevin A. Hassett. 1999. A new measure of horizontal equity. NBER Working Paper 7035, National Bureau of Economic Research, Cambridge, MA.

Bahl, Roy , ed. 1991. The Jamaican tax reform. Cambridge, MA: Lincoln Institute of Land Policy.

Bahl, Roy , and Sally Wallace. 2004. Comprehensive tax reform: Final report. Jamaican Tax Reform Project. Atlanta, GA: Andrew Young School of Policy Studies, Georgia State University.

Bird, Richard M. , and Barbara Diane Miller . 1989. The incidence of indirect taxes on low-income households in Jamaica. Economic Development and Cultural Change 37 (2): 393-409.

Gruber, Jonathan. 1997. The incidence of payroll taxation: Evidence from Chile. Journal of Labor Economics 15 (3): 72-101.

10.

Kaplow, Louis. 1989. Horizontal equity: Measures in search of a principle. National Tax Journal 36 (4): 139-154.

11.

Kaplow, Louis. 2000. Horizontal equity: New measures, unclear principles. NBER Working Paper 7649, National Bureau of Economic Research, Cambridge, MA.

12.

Kugler, Adriana. 2001. The impact of firing costs on turnover and unemployment: Evidence from the Colombian labor market reform. Discussion Paper, Centre for Economic Policy Research, Institute for the Study of Labor, Washington, DC.

13.

Kugler, Adriana , and Maurice Kugler. 2002. Effects of payroll taxes on employment and wages: Evidence from the Colombian Social Security reform. Discussion Paper, Centre for Economic Policy Research, Institute for the Study of Labor, Washington, DC.

14.

Marrufo, Grecia M. 2001. The incidence of Social Security taxes in economies with partial compliance: Evidence from the SS reform in Mexico. Stanford, CA: Center for Research on Economic Development and Policy Reform, Stanford University.

15.

Ministry of Finance and Planning . 2003. Emoluments Survey 2001. Kingston, Jamaica: Ministry of Finance and Planning.

16.

Musgrave, Richard. 1990. Horizontal equity, once more. National Tax Journal 43 (2): 113-122.

17.

Musgrave, Richard A. 1959. The theory of public finance—A study in public economy. New York: McGraw-Hill.

18.

Pechman, Joseph A. 1985. Who paid the taxes, 1966-1985? Washington, DC: Brookings Institution.

19.

Wallace, Sally , and James Alm. 2004. The Jamaican individual income tax. Jamaican Tax Reform Project, Working Paper 5, Andrew Young School of Policy Studies, Georgia State University, Atlanta.