Tax effects on household capital formation in the Philippines
Date
2008-10
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Abstract
This paper investigates the effect of taxes on the capital formation expenditure of Filipino households. This study, using data and variables from the 2003 Family Income and Expenditure Survey, defines household capital formation as outlays that include education, medical, house rental value, bank deposits, payments for insurance premiums. A new variable is derived from this definition. This variable (household capital formation) is then divided to the total expenditure of the family. The capital formation share to total expenditures is regressed against total income, family size, education of household head, sex of household head, region, grouping of the family's main source of income, income tax, real estate tax and other direct taxes. It is found out that certain regions, educational attainment and sources of income are significant to capital formation spending. Share of household capital formation to total expenditure would depend on the explanatory variables, such as the total income sex of the household head, educational attainment of the household head and the region the household is situated. More importantly, it was found out that taxes are significant to the equation, which implies that total tax payment has an effect on the proportion of capital formation spending of the household. Total taxes paid by the household affect the share of capital formation to total household expenditure negatively. Specifically, this means that increasing total paid taxes by a P100, 000 per year will decrease capital formation by 1.56%.
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Keywords
Tax, Tax effect, Household spending, Household expenditure, Capital formation, Investment