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The Flat Tax Reform: A General Equilibrium Evaluation For Spain

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  • Marta González

    ()

  • Josep Pijoan-Mas

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

This paper quantifies the macroeconomic and distributional implications of an array of flat tax reforms for Spain. A standard general equilibrium economy with heterogeneous agents is used to infer the behavioral parameters of individuals and to evaluate the impact of the tax reforms. We find that a revenue neutral reform with a marginal tax equal to 17.42% and a fixed deduction equal to 15% of per capita income will yield increases in aggregate consumption and labor productivity equal to 7.6% and 2.5% respectively. Admittedly, this type of reforms also generate increases in the gini indices of after tax income and consumption. However, a revenue neutral flat tax reform with a marginal tax equal to 23.37% and a fixed deduction equal to 35% still displays aggregate gains and has the good property that people in the lowest quintile of wage distribution pay lower taxes and enjoy higher consumption than under the current income tax.

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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2005_0505.

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Date of creation: May 2005
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Handle: RePEc:cmf:wpaper:wp2005_0505

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Keywords: Income tax; policy reform; heterogeneous agents; general equilibrium.;

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References

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  1. Andres Almazan & Javier Suarez & Sheridan Titman, 2003. "Stakeholder, Transparency and Capital Structure," NBER Working Papers 10101, National Bureau of Economic Research, Inc.
  2. Sascha O. Becker & Samuel Bentolila & Ana Fernandes & Andrea Ichino, 2004. "Job Insecurity And Children'S Emancipation," Working Papers, CEMFI wp2004_04, CEMFI.
  3. Samuel Bentolila & Juan F. Jimeno, 2003. "Spanish Unemployment: The End of the Wild Ride?," CESifo Working Paper Series 940, CESifo Group Munich.
  4. Ana Fernandes, 2004. "Knowledge, Technology Adoption And Financial Innovation," Working Papers, CEMFI wp2004_0408, CEMFI.
  5. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  6. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers, CEMFI wp2004_0422, CEMFI.
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Citations

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Cited by:
  1. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers, CEMFI wp2006_0611, CEMFI.
  2. Beatriz Dominguez & Juan-José Ganuza & Gerard Llobet, 2006. "R&D In The Pharmaceutical Industry: A World Of Small Innovation," Working Papers, CEMFI wp2006_0601, CEMFI.
  3. Aleix Calveras & Juan José Ganuza & Gerard Llobet, 2005. "Regulation and opportunism: How much activism do we need?," Economics Working Papers 935, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Ceron, Jose A. & Suarez, Javier, 2006. "Hot and Cold Housing Markets: International Evidence," CEPR Discussion Papers 5411, C.E.P.R. Discussion Papers.

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