Is Malta overtaxed?

Abstract

Taxation is the compulsory transfer of resources from private individuals, institutions of groups to the public sector. Taxes could be levied directly upon wealth, income and capital gains or indirectly in the form of an additional prices or the quantity of a good sold. It can be said that taxation is one of the principal means by which a government finances its expenditure. The debate on the burden of taxation in Malta has been going on for some time. Some say that the local economy is heavily taxed. Others argue that it is overtaxed, compared to foreign countries. The purpose of this dissertation is to evaluate the hypothesis that Malta is an overtaxed economy, paying particular attention to the data base on which research on taxation in Malta is carried out. Chapter one contains a historical overview of taxation in Malta during the period 1973-1997, where an outline of the main changes in the tax schedules and system of collection is presented. Chapter two analyses the relationship between taxation, the supply of effort and tax revenue. A preliminary section on international comparisons is included, wherein the regression model to be used in the analysis of the Maltese economy is explained. Chapter three examines various parameters of official tax data, such as omissions of important variables and time lags in revenue collection. Chapter 4 derives the 1994 internationally-equivalent tax rate for Malta from OECD tax data and compares with the actual Maltese tax burden of the same year. Chapter five evaluates the results of the previous chapter, adjusting data when applicable. Chapter six summarises the main findings of the study and explores the possible implications of the results. The chapter ends with a list of the main conclusions of the dissertation.