Assessing the progressivity of the Ukrainian tax system

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Type of the article: Research ArticleAbstractUnderstanding the pre-war structural progressivity of the Ukrainian tax system remains crucial for evaluating its distributional capacity and substantiating the ongoing debate on reintroducing a progressive tax scale in the post-war context. This study aims to assess the progressivity of the Ukrainian tax system. Estimation for 2014–2021 was conducted for the tax system as a whole and for each of the main taxes separately, and the lumped excise taxes, which accounted for 78% of total tax revenue in 2024. The Reynold-Smolensky index assessed the redistributive impact of the taxes in question (i.e., the degree by which they change the actual income inequality), while the Kakwani index was used to show the progressivity of their design (i.e., the impact of taxes on the direction and degree of disproportionality between income and tax burden). The most significant tax is VAT (Reynolds-Smolensky index: –2.54% in 2021), and it is the most regressive by design (Kakwani index: –8.51% in 2021). PIT is the only progressive tax (Kakwani index: 8.72% in 2021), and its redistributive impact is slightly lower than that of VAT (Reynolds-Smolensky index: 1.49%), which is insufficient to counter the latter’s regressive impact. As a result, the Ukrainian tax system is estimated to be mildly regressive, with moderately progressive PIT, moderately regressive VAT, and mildly regressive excises. VAT is encouraged to be left unchanged due to its key role in generating tax revenue. To increase tax progressivity, the reintroduction of a progressive PIT scale is recommended.AcknowledgmentThe paper was funded as part of the “Financial tools for reducing economic inequality in Ukraine” research project (No. 0124U002254), conducted at the State Organization “Institute for Economics and Forecasting of the National Academy of Sciences of Ukraine”.

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