High taxes for whom? An examination of inequality in state taxation by income, gender, and race

ABSTRACT

Introduction:

The Brazilian tax structure embodies a conservative facet of the social pact established by the 1988 Constitution. This article examines the effects of two specific taxes, the ICMS (Tax on Sales of Goods and Services) and the IPVA (Tax on Vehicle Ownership), on income distribution in Brazil.

Materials and methods:

Drawing on data from the 2017-2018 Family Budget Survey, our study estimated the annual expenditure on ICMS and IPVA for each family. We then calculated the percentage spent on these taxes by each income decile, as well as by the gender and race of the reference person, and by family composition. Additionally, we calculated the Lerman-Yitzhaki progressivity index to assess the degree of regressivity of these two taxes individually and collectively.

Results:

Our findings revealed a high regressivity of the ICMS and a relative proportionality of the IPVA when examining the entire population, and regressivity when considering only paying families. This regressivity was observed across both vertical (income levels) and horizontal (gender and race) equity dimensions.

Discussion:

The state-level taxation system disproportionately affects the most economically vulnerable people, Black individuals, and single mothers due to the indirect nature and rates of these taxes. This impact is exacerbated by the spending patterns and product choices of these vulnerable groups. Despite efforts to alleviate this tax regressivity, meaningful progress can only be achieved by rebalancing the relationship between direct and indirect taxes and by effectively incorporating considerations of gender and race into tax policies.

Keywords
taxation; regressivity; inequality; ICMS; IPVA