Flat Rate Taxes; A Policy Note

The objective of this paper is to provide an assessment of flat tax policies for policy makers. To do this, the paper reviews the theoretical impacts of a flat tax - how might a flat tax affect a country's tax administration, revenue generation, and economy - as well as the experience of countries that have recently introduced flat taxes. This subject is particularly timely, since in recent years the ‘flat tax' has developed an aura as a panacea for some of the ills of tax policy and tax administration. In particular, it has been seen as a vehicle to simplify tax systems both in OECD countries, whose tax systems have become overly complicated with time, and in transition countries, as they have struggled to introduce western-style taxation systems. Some flat tax proponents argue that countries with a weak tax administration and/or those encumbered by complicated tax systems may benefit more from moving to a flat rate income tax than a major reform of its tax system, such as moving to a broader consumption based tax.