Impact of personal income tax on work incentives and savings

"Impact of personal income tax on work incentives and savings"

Dr Kiran Kumar M1 , Sri Preethi A M2 , Pavan Kumar TS3 , Nishaanth A N 4

Assistant Professor – Finance1, MBA Finance Students 2,3&4

Faculty of Management Studies, CMS Business School, Jain (Deemed to be University)

Bengaluru, Karnataka, India

kiranm287@gmail.com, sripreethi995@gmail.com , `

Abstract:

Particularly in terms of work effort and saving patterns, personal income tax is very important in determining financial choices of people. Though tax collection is necessary for government revenue, its configuration can profoundly shape individual economic behavior. Personal income tax rates, work incentives, and savings habits among people are examined in this research to see their interaction. The goal is to find out if a rise in tax rates is related to a drop in monthly savings and work motivation, two critical elements influencing long-term financial stability and productivity. Data on monthly savings, single work incentive scores, and personal income tax rates were gathered to assess this. The power and direction of relationships between these factors were investigated using Pearson's correlation coefficient. The results show a significant adverse correlation of both savings and work motivation with tax rates. Higher tax rates usually reduce people's inclination to work harder or accept extra employment and likewise cut their savings potential. The research also presents an average score of work incentive and savings to evaluate the general behavior effects of taxes. The outcome confirms the theory that increased taxes reduce personal financial activity. For legislators who need to find a middle between required tax income and keeping personal motivation for economic activity, these observations are quite important. Creating tax laws that do not excessively weight citizens may encourage increased productivity, better saving behavior, therefore supporting personal financial stability and national economic development.

Keywords: Personal Income Tax, Work Incentives, Savings Behavior, Economic Decision-Making, Tax Policy.