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The "Flat Tax(es)"

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  • Ricardo Varsano
  • Kevin Kim
  • Michael Keen

Abstract

One of the most striking tax developments in recent years, and one that continues to attract considerable attention, is the adoption by several countries of a form of "flat tax." Discussion of these quite radical reforms has been marked, however, more by assertion and rhetoric than by analysis and evidence. This paper reviews experience with the flat tax, seeking to redress the balance. It stresses that the flat taxes that have been adopted differ fundamentally, and that empirical evidence on their effects is very limited. This precludes simple generalization, but several lessons emerge: there is no sign of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms; their impact on compliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity, including through the impact on compliance; adoption of the flat tax has not resolved common challenges in taxing capital income; and it may have strengthened, not weakened, the automatic stabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/218.

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Length: 51
Date of creation: 01 Oct 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/218

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Keywords: Tax systems; Tax reforms; Income taxes; flat tax; tax reform; flat taxes; marginal tax rate; tax payments; taxation; tax rates; tax income; tax system; flat tax reforms; marginal tax rates; tax changes; tax liability; tax evasion; tax countries; average tax rate; tax administration; rate of tax; optimal tax; flat tax reform; tax compliance; tax revenue; proportional tax; tax ? reforms; tax increases; corporate income tax; tax incomes; amount of tax; indirect tax; tax credit; tax structure; tax avoidance; tax authorities; tax reduction; tax cuts; tax revenues; taxable income; taxes on labor; tax cut; personal income tax; excise tax; corporate tax rate; tax base; indirect taxes; income groups; tax inspectors; level of taxation; flat tax ? reforms; tax ? reform; substitution effect; tax structures; progressive taxation; indirect taxation; total tax revenue; tax payment; personal taxes; tax arbitrage; gasoline taxes; tax collection; progressive tax; average rate of tax; income effect; vat rate; flat tax rate; corporation tax; tax design; tax administrations; tax instruments; higher income; marginal rate of tax; dividend taxation; fiscal documentation; fiscal policies; reforming tax systems; fiscal affairs department; flat income taxes; optimal tax problem; tax on dividends; tax liabilities; capital gains tax; tax competition; tax instrument; tax policy; taxes exports; tax distortions; tax treatment; fiscal affairs; federal taxes; lower income groups; reduction in tax; tax allowances; optimal] tax; vat structure; public finance; lower tax rates; vat compliance; tax burden; fiscal rules; tax preferences; tax on capital; discretionary fiscal policy; taxation of capital income; international tax; tax rate changes; regional tax; income tax rates; flat rates; fiscal policy; flat tax ? reform;

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  1. repec:rus:hseeco:130398 is not listed on IDEAS
  2. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer, vol. 8(2), pages 119-128, March.
  3. Vahram Stepanyan, 2003. "Reforming Tax Systems," IMF Working Papers 03/173, International Monetary Fund.
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