How progressive are Portugal´s taxes?

Abstract

In this work project, we use micro data from the Household Budget Survey wave of 2010 to measure the extent of progressivity of income and VAT taxes, together with social security contributions. We use the witholding tax rates to convert the net-at-source-income reported by the individuals in the survey into gross income, and then, through a careful implementation of the details of the income tax system, compute the net income. The identi cation of tax units and use of gross income allows for improvements on previous literature. We use the Reynolds- Smolensky and Kiefer indices to compute the progressivity of the several components of the tax system, i.e., (i) social security contributions; (ii) income taxes, including tax credits and deductions; (iii) witholding taxes, and, (iv) value added tax on nal consumption goods and services. Behavioural responses to taxation are also inspected. Income tax is found to be progressive, with withheld taxation being more progressive than nal taxes. Tax deductions are found to be more regressive than tax credits, and VAT is found to be regressive.