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Flat tax reform

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  • Michael Smart

Abstract

This paper studies the welfare effects of tax reforms moving in the direction of flat-rate taxation of income. The welfare impact of such reforms can be decomposed into two effects: (i) the increase in welfare associated with substitution among taxed commodities, and (ii) the loss in welfare associated with substitution between commodities and leisure. On balance, flat tax reforms are desirable when inter-commodity substitution effects are large relative to commodity--leisure substitution effects. The analysis allows us to reconcile the apparently conflicting results of the tax reform and optimal taxation literatures.

Suggested Citation

  • Michael Smart, 1998. "Flat tax reform," Working Papers msmart-98-01, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:msmart-98-01
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    References listed on IDEAS

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    7. Fane, George, 1991. "Piecemeal tax reforms and the compensated radial elasticities of tax bases," Journal of Public Economics, Elsevier, vol. 45(2), pages 263-270, July.
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    9. Hatta, Tatsuo, 1986. "Welfare effects of changing commodity tax rates toward uniformity," Journal of Public Economics, Elsevier, vol. 29(1), pages 99-112, February.
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    Cited by:

    1. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    2. Engström, Per & Holmlund, Bertil & Kolm, Ann-Sofie, 2001. "Optimal Taxation in Search Equilibrium with Home Production," Working Paper Series 2001:19, Uppsala University, Department of Economics.
    3. Nithin K, 2015. "The Case of Revenue versus Expenditure Optimization in India," Working Papers 1528, Indian Institute of Foreign Trade.

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    More about this item

    Keywords

    uniform commodity taxation; tax reform;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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