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Effects of flat tax reforms in Western Europe on equity and efficiency

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  • Paulus, Alari
  • Peichl, Andreas

Abstract

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.

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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM2/08.

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Date of creation: 01 Apr 2008
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Publication status: published
Handle: RePEc:ese:emodwp:em2-08

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  2. repec:ese:emodwp:em9-01 is not listed on IDEAS
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  4. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2008. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," NBER Working Papers, National Bureau of Economic Research, Inc 13719, National Bureau of Economic Research, Inc.
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  22. Clemens Fuest & Andreas Peichl & Thilo Schaefer, 2008. "Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany," International Tax and Public Finance, Springer, Springer, vol. 15(5), pages 620-636, October.
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Cited by:
  1. repec:ese:iserwp:2009-02 is not listed on IDEAS
  2. Schiau Laura-Liana & Moga Aura Carmen, 2009. "THE FLAT TAX EFFECTS a€“ THEORETICAL AND EMPIRICAL EVIDENCE IN WESTERN AND EASTERN EUROPEAN COUNTRIES," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, University of Oradea, Faculty of Economics, vol. 3(1), pages 343-348, May.
  3. repec:ese:emodwp:em9-09 is not listed on IDEAS
  4. Peichl, Andreas, 2008. "The Benefits of Linking CGE and Microsimulation Models: Evidence from a Flat Tax Analysis," IZA Discussion Papers, Institute for the Study of Labor (IZA) 3715, Institute for the Study of Labor (IZA).

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