The Impact of the Flat Tax Reform on Inequality: The Case of Romania
AbstractIn this paper we focused on the flat tax impact on inequality in Romania. We compared 2005 against 2004, when we were able to isolate the flat tax impact from other factors. We found that the higher the gross wage, the higher the flat tax gains. The inequality indicators we calculated (the Gini index, the relative mean deviation, the coeficient of variation, the standard deviation of logarithms, the Mehran index and the Piesch index) show an increase in inequality determined by the flat tax. The Lorenz curve is illustrative, as only the last quantile of the population (richest 20%) appears as the clear winner of the flat tax. The results also indicate that the income elasticity of consumption is decreasing across quartiles, from 81 to 71 percent. We conclude that the flat tax led to increased income inequality and it stimulated households consumption particularly among the wealthiest households.
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Bibliographic InfoPaper provided by The Vienna Institute for International Economic Studies, wiiw in its series The wiiw Balkan Observatory Working Papers with number 081.
Date of creation: May 2009
Date of revision:
Publication status: Published as The wiiw Balkan Observatory Working Paper, May 2009
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- I - Health, Education, and Welfare
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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- Molnar, Maria, 2011. "Income Polarization In Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 64-83, June.
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