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Slovakia's Introduction of a Flat Tax as Part of Wider Economic Reforms

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  • Anne-Marie Brook
  • Willi Leibfritz
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    Abstract

    Slovakia’s fundamental tax reform of 2004 considerably improved the simplicity and efficiency of the tax system by eliminating exemptions and special regimes and setting the rates for the personal income tax (PIT), the corporate income tax (CIT) and the value added tax (VAT) all equal to 19%. This paper assesses the impact of this reform in the context of Slovakia's wider package of economic reforms. With respect to economic efficiency, the two key conclusions are as follows: First, the reforms are expected to improve both the level and efficiency of capital investment in Slovakia – although further improvements could be made by eliminating the double taxation on projects financed by retained profits. Second, the combination of the tax and social benefit reforms has enhanced the incentives for unemployed workers to seek work, which should result in higher labour supply. Labour demand should also have increased, thanks to the more flexible labour market. However, as overall taxes on labour remain high, labour demand for very low skilled workers may not pick up without further reforms to reduce the cost of employing such workers. With respect to equity considerations the assessment is less clear cut. On the one hand the flat personal income tax has benefited both low income earners and very high earners, particularly those with families, while middle-income earners, particularly single earners appear to be somewhat worse off. The increase in VAT and the welfare reform also have distributive effects. The net result of these reforms has been a significant cut in the real incomes of social beneficiaries who are not working. On the other hand, by raising labour productivity and reducing structural unemployment the reforms have the potential to benefit the low-skilled population also – provided other public policies are in place to facilitate this outcome. This Working Paper relates to the 2005 OECD Economic Survey of the Slovak Republic (www.oecd.org/eco/surveys/slovakia) L'impôt à taux unique dans le contexte de réformes économiques slovaques La réforme fiscale radicale mise en place par la Slovaquie en 2004 a fortement accru la simplicité et l’efficience du système fiscal en supprimant les exemptions et les régimes spéciaux et en fixant un taux uniforme de 19 % pour l’impôt sur le revenu des personnes physiques (IRPP), l’impôt sur le revenu des sociétés (IRS) et la taxe sur la valeur ajoutée (TVA). Ce document évalue l’incidence de cette réforme dans le contexte d’une série plus générale de réformes économiques mises en œuvre par la Slovaquie. Du point de vue de l’efficience économique, les deux principales conclusions sont les suivantes : En premier lieu, les réformes vont sans doute augmenter à la fois le niveau et l’efficience de l’investissement en Slovaquie – même si une amélioration reste possible en supprimant la double imposition des investissements financés par les bénéfices non distribués. En second lieu, la réforme fiscale, conjuguée à une réforme du système de prestations sociales, renforce les incitations pour les chômeurs à chercher du travail, ce qui devrait accroître l’offre de main-d’œuvre. La demande de main-d’œuvre doit aussi avoir augmenté, grâce à la plus grande flexibilité du marché du travail. Cependant, l’imposition totale du travail demeurant élevée, la demande pour les travailleurs très peu qualifiés n’augmentera peut-être pas en l’absence de mesures supplémentaires pour réduire le coût de l’embauche de ces travailleurs. En ce qui concerne les considérations relatives à l’équité, l’évaluation est moins tranchée. D’un côté, le taux uniforme de l’impôt sur le revenu des personnes physiques profite à la fois aux catégories à bas revenus et à aux titulaires de revenus très élevés, en particulier ceux qui ont une famille, tandis que les catégories à revenu moyen, en particulier les célibataires, semblent quelque peu défavorisées. L’alourdissement de la TVA et la réforme de la protection sociale ont aussi des effets redistributifs. Au total, ces réformes se traduisent par une diminution sensible des ressources des bénéficiaires de prestations sociales qui ne travaillent pas. D’un autre côté, en rehaussant la productivité du travail et en réduisant le chômage structurel, les réformes vont sans doute bénéficier aussi à la population peu qualifiée – à condition que des mesures complémentaires soient mises en place pour faciliter ce résultat. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la République slovaque, 2005 (www.oecd.org/eco/etudes/slovaquie).

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 448.

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    Date of creation: 03 Oct 2005
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    Handle: RePEc:oec:ecoaaa:448-en

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    Keywords: capital taxation; flat tax; labour taxation; social security; tax policy; politique fiscale; sécurité sociale; impôt uniforme; fiscalité du travail; fiscalité du capital;

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    Cited by:
    1. Paulus, Alari & Peichl, Andreas, 2009. "Effects of flat tax reforms in Western Europe," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 620-636, September.
    2. Paulus, Alari & Peichl, Andreas, 2008. "Effects of flat tax reforms in Western Europe on equity and efficiency," EUROMOD Working Papers EM2/08, EUROMOD at the Institute for Social and Economic Research.
    3. Johannes Koettl & Truman Packard & Claudio E. Montenegro, 2012. "In From the Shadow : Integrating Europe's Informal Labor," World Bank Publications, The World Bank, number 9377, October.
    4. Paulus, Alari & Peichl, Andreas, 2008. "Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives," IZA Discussion Papers 3721, Institute for the Study of Labor (IZA).

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