High-income individuals in Ecuador pay low taxes, leading to income inequality.
The article explores how personal income tax in Ecuador affects income inequality from 2007 to 2011. By analyzing tax data, the researchers found that although the tax system is progressive, it doesn't do much to reduce inequality. High-income individuals tend to use legal deductions to lower their taxable income more than low-income individuals. Even though the top 1% pay a relatively low effective tax rate of 7%, the optimal tax rate for them could be as high as 63%.