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Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia

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Author Info
Yuriy Gorodnichenko
Jorge Martinez-Vazquez
Klara Sabirianova Peter

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Abstract

We examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. We associate large and significant changes in tax evasion following the flat tax reform with changes in voluntary compliance. We develop a consumption-based framework to assess the deadweight loss from income tax in the presence of tax evasion and show that the efficiency gains from the reform are at least 30 percent smaller than the gains implied by conventional approaches. (c) 2009 by The University of Chicago. All rights reserved..

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File URL: http://www.journals.uchicago.edu/doi/pdf/10.1086/599760
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 117 (2009)
Issue (Month): 3 (06)
Pages: 504-554
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Handle: RePEc:ucp:jpolec:v:117:y:2009:i:3:p:504-554

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian 'flat tax' reform," Economic Policy, CEPR, CES, MSH, vol. 20(43), pages 397-444, 07. [Downloadable!] (restricted)
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  6. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November. [Downloadable!] (restricted)
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  22. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April. [Downloadable!] (restricted)
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  26. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Peichl, Andreas, 2008. "The Benefits of Linking CGE and Microsimulation Models: Evidence from a Flat Tax Analysis," IZA Discussion Papers 3715, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Gorodnichenko, Yuriy & Sabirianova Peter, Klara & Stolyarov, Dmitriy, 2009. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," IZA Discussion Papers 4233, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," NBER Working Papers 15012, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. repec:ese:iserwp: is not listed on IDEAS
  5. Sabirianova Peter, Klara & Buttrick, Steve & Duncan, Denvil, 2009. "Global Reform of Personal Income Taxation, 1981-2005: Evidence from 189 Countries," IZA Discussion Papers 4228, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Karsten Staehr, 2008. "Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia," Bank of Estonia Working Papers 2008-03, Bank of Estonia, revised 30 Oct 2008. [Downloadable!]
  7. Peichl, Andreas & Paulus, Alari, 2007. "Effects of flat tax reforms in Western Europe on equity and efficiency," FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-4, University of Cologne, CPE - Cologne Center for Public Economics. [Downloadable!]
    Other versions:
  8. Andreas Peichl, 2009. "The Benefits and Problems of Linking Micro and Macro Models: Evidence from a Flat Tax Analysis," SOEPpapers 182, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  9. Lev Freinkman & Konstantin A. Kholodilin & Ulrich Thießen, 2009. "Incentive Effects of Fiscal Equalization: Has Russian Style Improved?," Discussion Papers of DIW Berlin 912, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  10. Clemens Fuest & Andreas Peichl & Thilo Schaefer, 2008. "Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany," International Tax and Public Finance, Springer, vol. 15(5), pages 620-636, October. [Downloadable!] (restricted)
  11. Duncan, Denvil & Sabirianova Peter, Klara, 2009. "Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform," IZA Discussion Papers 4257, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Paulus, Alari & Peichl, Andreas, 2008. "Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives," IZA Discussion Papers 3721, Institute for the Study of Labor (IZA). [Downloadable!]
  13. Denvil Duncan & Klara Sabirianova Peter, 2009. "Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform," International Studies Program Working Paper Series, at AYSPS, GSU paper0906, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
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