Modelling of a relative income tax bracket-based progression with the effect of a slower tax burden growth

Abstract

This study aims to model the distribution of the tax burden in schedular progressive taxation and to describe the key characteristics of such models, in particular their differences from the models based on continuously increasing smooth functions of the relationship between the tax burden and the taxpayer's income. Our hypothesis is that the use of the Gompertz function to model the main indicators of tax burden distribution of the schedular progressive income tax will help us approximate and formalize the distribution of the tax burden in a relative income tax bracket-based progression. Our research relies on the hypothetico-deductive model, more specifically, on mathematical hypothesis testing. The methodological framework comprises models of progressive taxation and mathematical methods, including data approximation based on the use of the Gompertz function, analysis of the antiderivative and convexity of functions and their properties. The resulting model can be used to describe the dynamic characteristics of the relationship between the tax burden and certain parameters of schedular taxation. This model can help identify the level of income beyond which the progression of the tax burden becomes formal and does not generate commensurately high revenue growth. The existence of such income level results in what can be considered the key drawback of the relative progression in question – the impossibility to provide a significant difference (step) of the tax burden progression in the whole interval of the taxpayer's income. What makes this research practically significant is that the proposed methodology allows us to take into account the actual tax burden in modelling the parameters of the relative progression.