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Effects of flat tax reforms in Western Europe

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  • Paulus, Alari
  • Peichl, Andreas

Abstract

Recent success of the flat income tax in Eastern Europe raises questions about whether there is scope for such a policy reform in Western Europe as well. We address this by estimating the potential distributional impact of various flat taxes for selected Western European countries. Our simulations show that in specific circumstances a revenue neutral flat tax reform can increase income equality and improve work incentives; however, in most cases there is an equity-efficiency trade-off. We show that the specific flat tax design and the welfare state regime play a key role.

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  • 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.
  • Handle: RePEc:eee:jpolmo:v:31:y:2009:i:5:p:620-636
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    Cited by:

    1. Ampudia, Miguel & Pavlickova, Akmaral & Slacalek, Jiri & Vogel, Edgar, 2016. "Household heterogeneity in the euro area since the onset of the Great Recession," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 181-197.
    2. Vasilev, Aleksandar, 2015. "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 169-185.
    3. Kirill Shakhnov, 2016. "The Tax System Of Belarus," BEROC Working Paper Series 36, Belarusian Economic Research and Outreach Center (BEROC).
    4. Maza, Adolfo & Villaverde, José, 2011. "EU regional convergence and policy: Does the concept of region matter?," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 889-900.
    5. Kamil Galuscak & Gabor Katay, 2014. "Labour Force Participation and Tax-Benefit Systems: A Cross-Country Comparative Perspective," Working Papers 2014/10, Czech National Bank, Research Department.
    6. repec:kap:itaxpf:v:24:y:2017:i:6:d:10.1007_s10797-017-9446-3 is not listed on IDEAS
    7. 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, vol. 3(1), pages 343-348, May.
    8. Cristián Mardones Poblete, 2010. "Evaluando Reformas Tributarias en Chile con un Modelo CGE," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 243-284, December.
    9. Andreas Peichl, 2009. "The benefits and problems of linking micro and macromodels - Evidence from a flat tax analysis," Journal of Applied Economics, Universidad del CEMA, vol. 12, pages 301-329, November.
    10. Nina Hetzer & Andreas Peichl, 2010. "Steuerstrukturreform trotz leerer Kassen?!," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(01), pages 28-35, January.
    11. Andreas PEICHL, "undated". "The Benefits of Linking CGE and Microsimulation Models - Evidence from a Flat Tax analysis," EcoMod2008 23800106, EcoMod.
    12. Fuest, Clemens & Peichl, Andreas & Schaefer, Thilo, 2007. "Is a Flat Tax Feasible in a Grown-up Welfare State?," IZA Discussion Papers 3142, Institute for the Study of Labor (IZA).
    13. Perugini, Cristiano & Pompei, Fabrizio, 2016. "Employment protection and wage inequality within education groups in Europe," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 810-836.
    14. Aristei, David & Perugini, Cristiano, 2010. "Preferences for redistribution and inequality in well-being across Europe," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 176-195, March.
    15. Sasa Randelovic & Jelena Zarkovic Rakic, 2013. "Improving work incentives in Serbia: evaluation of a tax policy reform using SRMOD," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 157-176.
    16. Peter, Klara Sabirianova & Buttrick, Steve & Duncan, Denvil, 2010. "Global Reform of Personal Income Taxation, 1981–2005: Evidence From 189 Countries," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(3), pages 447-478, September.
    17. Paulus, Alari & Lelkes, Orsolya & Cok, Mitja & Kump, Nataša & Hegedus, Péter & Võrk, Andres & Szivós, Péter & Kralik, Silja, 2009. "Flat tax reform in Eastern Europe: a comparative analysis of alternative scenarios in Estonia, Hungary and Slovenia, using EUROMOD," EUROMOD Working Papers EM9/09, EUROMOD at the Institute for Social and Economic Research.
    18. Slack, Sean Edward, 2015. "Revisiting the optimal linear income tax with categorical transfers," Economics Letters, Elsevier, vol. 134(C), pages 73-77.
    19. 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.
    20. Maryia Akulava, 2016. "Current Gender Trends in Belarusian Labor Market: Wage Gap, Child Penalty and Marriage Premium," BEROC Working Paper Series 38, Belarusian Economic Research and Outreach Center (BEROC).
    21. Flamino Viola & Margarida Saraiva, 2015. "Flat Tax, the solution?," CEFAGE-UE Working Papers 2015_07, University of Evora, CEFAGE-UE (Portugal).
    22. Cristián Mardones P., 2014. "Complementarity between flat tax and conditional cash transfers to improve the income distribution in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 17(3), pages 04-27, December.
    23. Andreas Peichl, 2014. "Flat-rate tax systems and their effect on labor markets," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-61, October.

    More about this item

    Keywords

    Flat tax reform Income inequality Labour supply incentives Microsimulation;

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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