ABSTRACT
Today, it is generally understood that taxation should be used as a means to improve income distribution. Thus, all countries have adopted progressive income tax systems. However, not all taxes are progressive. One convenient way to examine the impact of direct taxes on income distribution is to compare the Gini coefficients before taxes and after taxes. If the Gini coefficient is significantly lower after direct taxes are paid, we can say that taxation had a significant impact on the reduction of income inequality. Economists and policymakers have long been perplexed over the way rapid growth appears to conflict with the other common goal of developing nations - more equitable income distribution. But economic expansion need not preclude equity, as demonstrated by the case of Taiwan, which experienced high rates of economic growth between the early 1950s and the late 1970s while simultaneously improving the distribution of income among its people.
