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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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  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, 2011. "Income Taxation of U.S. Households: Basic Facts," IZA Discussion Papers 5549, Institute for the Study of Labor (IZA).
  2. 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).
  3. Javier Diaz-Gimenez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms in the U.S.: a Boon for the Income Poor," Computing in Economics and Finance 2006 400, Society for Computational Economics.
  4. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, . "Income Taxation of U.S. Households: Facts and Parametric Estimates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  5. Daniel R. Carroll & Eric R. Young, 2009. "The long run effects of changes in tax progressivity," Working Paper 0913, Federal Reserve Bank of Cleveland.
  6. 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.
  7. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," IZA Discussion Papers 3318, Institute for the Study of Labor (IZA).
  8. Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Working Papers 07-12, Bank of Canada.
  9. 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.
  10. repec:ese:iserwp:2009-02 is not listed on IDEAS

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