Publication: Income Taxation of the Top Earners in Honduras: Linking Personal and Corporate Taxes
Loading...
Published
2025-03-12
ISSN
Date
2025-03-12
Editor(s)
Abstract
This note examines the effective income tax rates of top earners in Honduras, using a novel approach that links personal and corporate income tax data. This comprehensive income measure, achieved through collaboration with the Honduras Tax Authority (SAR), reveals a crucial link between the design of personal and corporate income taxes. The findings indicate that over 50% of total comprehensive income for the top 0.05% of earners comes from undistributed corporate profits, while distributed capital income accounts for less than 15%. The effective tax rate (ETR) for the top 0.01% of earners hovers around 25%, which is relatively flat compared to the significant drop observed in high-income countries. This is attributed to Honduras’s flat corporate income tax rate of 25% aligning with the highest marginal rate for personal income.
Link to Data Set
Citation
“Scot, Thiago; Bachas, Pierre; Cesteros, Santiago; Flores, Tatiana; Oqueli, Gabriel; Espinal Hernandez, Edgardo Enrique; Ponce Nuñez, Wilman Alonso; Canales Licona, Sahira Rocio. 2025. Income Taxation of the Top Earners in Honduras: Linking Personal and Corporate Taxes. Prosperity Insight Series. © World Bank. http://hdl.handle.net/10986/42937 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication VAT Cashback Programs in Practice: The Case of Devolve-ICMS in Rio Grande do Sul, Brazil(Washington, DC: World Bank, 2025-08-28)This note describes the Devolve-ICMS program, an innovative VAT cashback initiative aimed at refunding taxes to low-income households in the state of Rio Grande do Sul, Brazil. Using administrative records, the authors document several stylized facts about the workings of the program. First, even the poorest households sometimes consume in formal stores. Second, as a share of reported income, lower income families consume relatively more on average. Third, 60 percent of households only receive a flat cash transfer, unrelated to their formal consumption–this highlights the trade-offs in generosity vs. incentivizing formal consumption. Finally, formal consumption is substantially higher for female headed households and for participants in a concurrent lottery program that also incentivizes formal consumption.Publication Offshore Data Leaks and Tax Enforcement in Developing Countries(Washington, DC: World Bank, 2024-05-20)The past decade has witnessed a rapid increase in data leaks from tax havens, spanning from the Luxembourg Leaks to revelations in the Panama and Pandora Papers. While these leaks often prompt political investigations into politicians with offshore accounts and calls from civil society for greater transparency in corporate ownership, they also serve as valuable resources for tax authorities investigating cross-border tax evasion and avoidance. To illustrate this point, this note analyzes three country cases—Ecuador, Honduras, and Senegal—where the authors closely collaborated with national tax administrations. It documents the distribution of offshore company formation across jurisdictions for shareholders and ultimate beneficial owners, as well as the relative prevalence of these countries in the overall dataset published by the International Consortium of Investigative Journalists (ICIJ) in its Offshore Leaks Database (OLD). Finally, policy recommendations are provided for enhancing personal income tax enforcement.Publication Two Decades of Top Income Shares in Honduras(Washington, DC: World Bank, 2024-03-19)This paper presents distributional national accounts for Honduras over 2003–2019, using survey microdata, administrative tax records, and national account aggregates. It assembles comprehensive data on formal income for high-income individuals, including information on corporate shareholders, which allows corporate profits to be assigned to their owners. The estimates suggest a high and persistent inequality in the country: the top 1 percent highest earners received approximately 30 percent of the total income over the period, placing Honduras among the most unequal countries in the world. Undistributed corporate profits are the overwhelming income source at the very top of the distribution, highlighting its importance in the measurement of income inequality. Finally, using a panel of tax records, the paper also documents that not only is inequality persistent, but the same individuals are often observed at the top, suggesting that the observed inequality has deep roots.Publication Targeting in Tax Compliance Interventions(Washington, DC: World Bank, 2022-03-14)Tax authorities often use low-cost communication with taxpayers to encourage voluntary compliance and avoid other costly interventions. This paper reports findings from an experiment with more than 30,000 taxpayers in Honduras, designed to assess how taxpayers with different risk scores respond to a communication intervention. Across several outcomes, the average effect of the intervention on compliance was 0. Contrary to the expectation of experts surveyed, only taxpayers considered to be at low risk of noncompliance increase their filing and reported income. Using rich administrative data and a causal forest algorithm, the paper finds that ex-ante predicted risk and responsiveness to the intervention are negatively correlated. These findings can inform the design of targeted interventions by tax authorities.Publication Globalization and Factor Income Taxation(Washington, DC: World Bank, 2022-03-15)How has globalization affected the relative taxation of labor and capital, and why To address this question, this paper builds and analyzes a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. Four main findings are obtained. (1) The effective tax rates on labor and capital have converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation has increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, the findings show that the rise in capital taxation in developing countries can be explained by a tax capacity effect of international trade: trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries, the positive tax-capacity effect of international trade appears to have prevailed.
Users also downloaded
Showing related downloaded files
Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Morocco Economic Update, Winter 2025(Washington, DC: World Bank, 2025-04-03)Despite the drought causing a modest deceleration of overall GDP growth to 3.2 percent, the Moroccan economy has exhibited some encouraging trends in 2024. Non-agricultural growth has accelerated to an estimated 3.8 percent, driven by a revitalized industrial sector and a rebound in gross capital formation. Inflation has dropped below 1 percent, allowing Bank al-Maghrib to begin easing its monetary policy. While rural labor markets remain depressed, the economy has added close to 162,000 jobs in urban areas. Morocco’s external position remains strong overall, with a moderate current account deficit largely financed by growing foreign direct investment inflows, underpinned by solid investor confidence indicators. Despite significant spending pressures, the debt-to-GDP ratio is slowly declining.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.