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Flat-rate tax systems and their effect on labor markets

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  • Andreas Peichl

    (ZEW, University of Mannheim, and IZA, Germany)

Abstract

The potential economic outcomes resulting from a flat rate of income tax have been the subject of an ongoing academic and political debate. Many observers have suggested that the introduction of a flat tax would be beneficial for a country’s economy, having a positive influence on the labor market and the gross domestic product by enhancing incentives to work, save, invest, and take risks. A flat tax also significantly simplifies income taxation which increases tax compliance and reduces tax planning, avoidance, and evasion. However, despite flat taxes being on the political agenda in many countries, in practice their implementation has mostly been restricted to the transition economy countries of Eastern Europe. There is no one single flat tax system in place in these countries though; one rate does not fit all.

Suggested Citation

  • Andreas Peichl, 2014. "Flat-rate tax systems and their effect on labor markets," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-61, October.
  • Handle: RePEc:iza:izawol:journl:y:2014:n:61
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    References listed on IDEAS

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    1. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-174, Fall.
    2. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian ‘flat tax’ reform," Economic Policy, CEPR;CES;MSH, vol. 20(43), pages 397-444, July.
    3. Slemrod, Joel, 1997. "Deconstructing the Income Tax," American Economic Review, American Economic Association, vol. 87(2), pages 151-155, May.
    4. Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807.
    5. Peter Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 165-190, Fall.
    6. 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.
    7. 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.
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    Citations

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    Cited by:

    1. 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 - Leibniz Information Centre for Economics, pages 169-185.
    2. Paukkeri, Tuuli, 2018. "Essays on public economics," Research Reports P72, VATT Institute for Economic Research.
    3. Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2018. "Optimal taxation and public provision for poverty reduction," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 64-98, February.
    4. Rolf Aaberge & Ugo Colombino, 2018. "Structural Labour Supply Models and Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 162-197.
    5. Pántya, József & Kovács, Judit & Kogler, Christoph & Kirchler, Erich, 2016. "Work performance and tax compliance in flat and progressive tax systems," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 262-273.

    More about this item

    Keywords

    flat tax; employment; simplification; labor supply; microsimulation;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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