Analyzing the Effects of Government Tax as a Fiscal Policy on the Economical Welfare of Civil Servants in Lusaka

This study examined the effects of government tax policies as fiscal intervention on the economic welfare of civil servants in Zambia, focusing on the effects of income, consumption and savings. Using a sample size of 140 civil servants randomly selected from different ministries in Lusaka, the study addressed the gap that exists between the overly focus on the government revenue through tax and the ultimate effect the policy has on the welfare of civil servants in Zambia . Results indicate that increases in tax rates mean that disposable income will decrease much more, and that consumption in excess of essential goods, affects non-essential goods, and cut savings from civil servants. To contrast, tax rebates and reductions did increase disposable income, save money, and positively affect short-term consumption. The regression analysis confirmed that tax policy change is a significant predictor of consumption (R2 = 0.709, disposable income, R2 = 0.812), savings behavior (R2 = 0.754). Tax increases negatively affect all three variables except the tax reductions, which are beneficial despite the weak impact of tax cut reductions. For the income, the tax effects were found to yield an income function of Yd = 5.18 - 0.75Tax Increase + 0.48 Tax Cut. This implies that the tax effect had a 0.75 propensity on income reduction for every ZMW1 increase in tax while tax reduction had a propensity of 0.48 for every ZMW1 reduction. This showed that the damage caused by tax increase is more than the gain from tax reduction. The marginal propensity to save due to tax cut and tax increases were found to be +0.14 and - 0.63 respectively. The consumption pattern was found to have a -0.67 on reduction and 0.34 increase in on tax increase and tax deduction respectively. The study concludes that policy changes aimed at addressing disposable income and savings can increase savings, improve economic security among civil servants, and improve macroeconomic stability in the global economy but not to an extent that tax increases damages the three factors. The study recommends that there is a need to align the tax policy and emphasize the importance of carefully designed fiscal policies that look at revenue goals and public employees' welfare, suggesting excessive taxation is likely to hinder financial stability and economic prosperity.