The Flat Tax Reform: A General Equilibrium Evaluation For Spain
AbstractThis 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 InfoPaper provided by CEMFI in its series Working Papers with number wp2005_0505.
Date of creation: May 2005
Date of revision:
Income tax; policy reform; heterogeneous agents; general equilibrium.;
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; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-02 (All new papers)
- NEP-DGE-2005-09-02 (Dynamic General Equilibrium)
- NEP-EEC-2005-09-02 (European Economics)
- NEP-PBE-2005-09-02 (Public Economics)
- NEP-PUB-2005-09-02 (Public Finance)
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