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Are Tax Expenditures of Individuals Only a Tool of Tax Optimisation?

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  • Pavlína Kirschnerová

    (Silesian University in Opava)

  • Jana Janoušková

    (Silesian University in Opava)

Abstract

The paper focuses on tax expenditures of individuals, which are one of the fiscal tools of the state. In the Czech Republic they are primarily aimed at housing policy, pension policy, and philanthropy, and the question is the extent to which tax expenditures can influence the preferences of tax payers. The aim of this paper is to evaluate the effect of tax expenditures of individuals in the form of tax deductions for social policy, housing support and retirement savings. We also evaluate whether these tax deductions fulfill the fiscal functions for which they were introduced and the extent to which taxpayers use them. Methodically, the research is based on the analysis of secondary statistical data of the Financial Administration of the Czech Republic and results from aggregated tax returns filed for the period 2005–2015. The effect of tax deductions was decreased by abolition of the progressive rate of personal income taxes and by introduction of a uniform tax rate of 15%. Tax deductions for retirement savings do not have a sufficiently strong motivational impact and do not affect taxpayers in the context of public policy. Deductions for mortgage interest can be regarded as a form of major housing support, but are related to taxpayer income and favor those with higher incomes.

Suggested Citation

  • Pavlína Kirschnerová & Jana Janoušková, 2018. "Are Tax Expenditures of Individuals Only a Tool of Tax Optimisation?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(3), pages 239-252, August.
    • Handle: RePEc:kap:iaecre:v:24:y:2018:i:3:d:10.1007_s11294-018-9696-6
    DOI: 10.1007/s11294-018-9696-6
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    References listed on IDEAS

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    1. Sami Alpanda & Sarah Zubairy, 2016. "Housing and Tax Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 485-512, March.
    2. Maria Teresa Medeiros Garcia, 2017. "Overview of the Portuguese Three Pillar Pension System," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(2), pages 175-189, May.
    3. Poterba, James M. & Sinai, Todd, 2011. "Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 531-564, June.
    4. Tunga Kantarcı & Ingrid A J Smeets & Arthur van Soest, 2013. "Implications of Full and Partial Retirement for Replacement Rates in a Defined Benefit System," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(4), pages 824-856, October.
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    More about this item

    Keywords

    Tax policy; Tax deductions; Individuals; Mortgage interest; Life insurance; Retirement contributions;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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