The Impact of Negative Income Taxes on Poverty and Inequality in Iran

Subject Areas : Computational economics

Farhad Khodadadkashi ¹ , Yeghaneh Mousavi Jahromi ² , Hasan Aama Bandoghraee ³

1 - Associate Professor of Economics, Payame Noor University, Department of Economics, Tehran, Iran,
2 - Associate Professor of Economics, Payame Noor University, Department of Economics, Tehran, Iran
3 - Academic Member of Economics, Payame Noor University, Kashmar, Iran

Received: 2022-03-13 Accepted : 2022-05-21 Published : 2022-05-22

Keywords: Gini Coefficient, poverty, Negative income tax, Kakwani poverty index,

Abstract :

In this article, we try to examine how to eliminate poverty and inequality throughthe negative income tax system. In this study, the rate of poverty and inequality iscalculated through Kakwani poverty indicators and Gini coefficient inequality index,respectively. Negative income tax rate (0.5) for the income distance to the povertyline, is considered and the statistical sample of the study includes the cost andincome of 12961 urban households in Iran in 2018. The results of this study showthat the plan to impose a negative income tax (0.5) will reduce the povertycalculated based on the Kakovani index from 0.54 to 0.24 which shows a decreaseof about 0.55%. The Gini coefficient decreases from 0.38 before the policy to 0.17,which means a 55% reduction in inequality. On the other hand, to completelyeradicate poverty in Iran, according to the data of 2018, there must impose anincreased tax rate of 60% on the income surplus of non-poor people up to thepoverty line.