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Flat Tax Reforms In The U.S.: A Boon For The Income Poor

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  • Javier Díaz-Giménez

    ()

  • Josep Pijoan-Mas

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

Abstract

In this article we queantify the aggregate, distributional and welfare consequences of two revenue neutral flat-tax reforms using a model economy that replicates the U.S. distributions of earnings, income and wealth in very much detail. We find that the less progressive reform brings about a 2.4 percent increase in steady-state output and a more unequal distribution of after-tax income. In contrast, the more progressive reform brings about a -2.6 percent reduction is steady-state output and a distribution of aftertax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17 percent of consumption, and in the more progessive flat-tax economy it increases by 0.45 percent of consumption. In both flat-tax refoms the income poor pay less income taxes and obtain sizeable welfare gains.

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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2006_0611.

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Date of creation: Jul 2006
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Handle: RePEc:cmf:wpaper:wp2006_0611

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Keywords: Flat-tax reforms; efficiency; inequality; earnings distribution; income distributions; wealth distribution.;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Flat taxes: good for the poor
    by chris dillow in Stumbling and Mumbling on 2006-07-17 14:37:42
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Cited by:
  1. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," IZA Discussion Papers 3318, Institute for the Study of Labor (IZA).
  2. Díaz-Giménez, Javier & Pijoan-Mas, Josep, 2006. "Flat Tax Reforms in the US: A Boon for the Income Poor," CEPR Discussion Papers 5812, C.E.P.R. Discussion Papers.
  3. Carroll, Daniel R. & Young, Eric R., 2011. "The long run effects of changes in tax progressivity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1451-1473, September.
  4. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2012. "Income Taxation of U.S. Households: Facts and Parametric Estimates," CEPR Discussion Papers 9078, C.E.P.R. Discussion Papers.
  5. Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Working Papers 07-12, Bank of Canada.
  6. Marta González-Torrabadella & Josep Pijoan-Mas, 2006. "Flat tax reforms: a general equilibrium evaluation for Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 317-351, May.
  7. 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).
  8. repec:ese:iserwp:2009-02 is not listed on IDEAS
  9. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2011. "Income Taxation of U.S. Households: Basic Facts," IZA Discussion Papers 5549, Institute for the Study of Labor (IZA).
  10. Remzi Kaygusuz, 2010. "Taxes and Female Labor Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 725-741, October.

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