Assessing the Influence of Income Tax Policies on Diminishing Monetary Disparities

Abstract

This study assesses the impact of income and sales tax policies on welfare enhancement and inequality reduction in Pakistan. It delves into the intricate interplay between tax structures, economic welfare, and societal equality within the Pakistani context. Employing two distinct simulation models including Simulation-I and Simulation-II, the research rigorously assesses the ramifications of altered tax policies on household welfare, inequality, poverty rates, and economic sectors. Comprehensive data spanning diverse rural and urban household segments was collected and analyzed, encompassing income, expenditure, trade statistics, and welfare indicators. Through Theil Indices, compensatory variation analysis, and trade assessments, the research investigates the nuanced effects of income tax policies on household disparities. Findings reveal substantial variations in household welfare across distinct categories in response to varying magnitudes of tax policy alterations. The study not only highlights the differential impact on rural and urban sectors but also delineates trade patterns and economic activity changes consequent to these policy adjustments. Moreover, limitations and ethical considerations concerning data constraints and privacy are addressed. By scrutinizing income and sales tax models, this research endeavors to provide insights into potential improvements for policy-makers to enhance welfare and mitigate inequality in Pakistan's socio-economic landscape.