Nevertheless, the bluntness of these indicators is suggested by reference back to the microdata-based Kakwani index results for personal taxes for IDA countries in section 3. Ghana and Nicaragua appear more progressive than Tanzania and Uganda in Table 1, particularly in terms of the direct-to-indirect tax ratio. In contrast, results from section 3, albeit for different years, suggest that direct personal income taxes in both Tanzania and Uganda are significantly more progressive than in Ghana or Nicaragua (with Kakwani indices of 0.52 and 0.47 vs 0.29 and 0.31, respectively). That said, the low average tax rate effect for Uganda is consistent in both analyses, suggesting low redistributive impact. Meanwhile, Honduras exhibits comparatively low progressivity in both analyses. These comparisons emphasize the merit in presenting a range of metrics where possible for each country.

## 5.3 Pros and cons of aggregate tax revenue-based metrics

There appear clear benefits to the calculation of these summary metrics, which enable the impact of either all direct taxes, or of personal and corporate taxes (including tax revenue from capital income) to be incorporated. They are available for a large number of IDA countries, at low cost, and in most cases with only a time lag of around two years. However, they remain blunt indicators as they do not distinguish between taxes paid by poor and rich households and instead rely on strong assumptions regarding the incidence of different tax types. For example, if a country adopts a flat rate PIT system, the resulting lack of progressivity would be missed by these aggregate metrics.<sup>33</sup> Furthermore, there are data quality concerns in a number of countries, and while the time lags are generally small, for some countries the lags are large enough for them not to be useful in terms of the desired monitoring exercise for IDA20. If they are to be used, they should be complemented by additional indicators where possible, particularly of the progressivity of the PIT.

# 6 Measuring tax progressivity in IDA countries

Drawing on the preceding analysis, this section proposes a set of indicators for measuring progressivity in IDA countries over FY23-25. The proposal is guided by the following principles:

- The need to assess progressivity in IDA countries in FY23-25, concurrently, if possible or with minimal lag.

- The desire to assess progressivity of the entire tax system, not just the personal income tax.

- Acknowledgment of data limitations: specifically, the lack of availability of income survey microdata in most IDA countries, and difficulty in accessing consumption microdata.

- Acknowledgment of the limitations of different progressivity metrics.

- Acknowledgment of resource constraints.

As highlighted by the preceding sections, there are strengths and weaknesses with different measures of progressivity and redistribution. It is therefore proposed that a suite of metrics be employed to assess progressivity in IDA countries over FY23-25. Aggregate tax revenue metrics would be relied upon to provide a basic assessment of the progressivity of the overall tax system, while the degree of progressivity of PIT systems would be investigated in further detail utilizing both effective progressivity and progressive capacity metrics. In light of the large number of countries involved, a simplified modelling approach is

> 33 Even in flat rate PIT systems, the existence of a basic allowance will still create some progressivity (i.e., the average tax rate will increase with income). However, this will be significantly less than in a typical country applying a progressive tax rate schedule.

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