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Flat Tax Reforms in the US: A Boon for the Income Poor

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  • Díaz-Giménez, Javier
  • Pijoan-Mas, Josep

Abstract

In this article we quantify 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% 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% reduction in steady state output and a distribution of after-tax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17% of consumption, and in the more progressive flat-tax economy it increases by 0.45% of consumption. In both flat-tax reforms the income poor pay less income taxes and obtain sizeable welfare gains.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5812.

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Date of creation: Sep 2006
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Handle: RePEc:cpr:ceprdp:5812

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Keywords: earnings distribution; efficiency; flat-tax reforms; income distribution; inequality; wealth distribution;

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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. 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.
  2. repec:ese:iserwp:2009-02 is not listed on IDEAS
  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. Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Working Papers 07-12, Bank of Canada.
  5. 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.
  6. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2013. "Income Taxation of U.S. Households: Facts and Parametric Estimates," Working Papers 705, Barcelona Graduate School of Economics.
  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. 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.
  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. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers 6702, C.E.P.R. Discussion Papers.

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