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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Paper provided by CEMFI in its series Working Papers with number
wp2005_0505.
Find related papers by JEL classification: H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
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