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Effects of flat tax reforms in Western Europe

  • Paulus, Alari
  • Peichl, Andreas

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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Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 31 (2009)
Issue (Month): 5 (September)
Pages: 620-636

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Handle: RePEc:eee:jpolmo:v:31:y:2009:i:5:p:620-636
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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  1. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0720, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
  3. Elettra Agliardi & Rossella Agliardi, 2007. "Progressive Taxation and Corporate Liquidation: Analysis and Policy Implications," Working Paper Series 29-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  4. Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, vol. 13(4), pages 595-621.
  5. Kuismanen, Mika, 2000. "Labour Supply and Income Tax Changes: A Simulation Study for Finland," Research Discussion Papers 5/2000, Bank of Finland.
  6. Marta González-Torrabadella & Josep Pijoan-Mas, 2006. "Flat tax reforms: a general equilibrium evaluation for Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 317-351, May.
  7. de Jager, Nicole E. M. & Graafland, Johan J. & Gelauff, George M. M., 1996. "A negative income tax in a mini-welfare state: A simulation exercise with mimic," Journal of Policy Modeling, Elsevier, vol. 18(2), pages 223-231, April.
  8. 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).
  9. Bas Jacobs & Ruud A. de Mooij & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," Tinbergen Institute Discussion Papers 07-029/3, Tinbergen Institute.
  10. Anne-Marie Brook & Willi Leibfritz, 2005. "Slovakia's Introduction of a Flat Tax as Part of Wider Economic Reforms," OECD Economics Department Working Papers 448, OECD Publishing.
  11. Steven P. Cassou & Kevin J. Lansing, 2004. "Growth Effects of Shifting from a Graduated-rate Tax System to a Flat Tax," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 194-213, April.
  12. European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
  13. Ruud A. De Mooij & Bas Jacobs & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," CESifo Working Paper Series 1890, CESifo Group Munich.
  14. Clemens Fuest & Andreas Peichl & Thilo Schaefer, 2008. "Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany," International Tax and Public Finance, Springer, vol. 15(5), pages 620-636, October.
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