IDEAS home Printed from https://ideas.repec.org/a/pfq/journl/v58y2013i4p369-385.html
   My bibliography  Save this article

Winners and Losers. An assessment of the Hungarian flat tax reform with microsimulation

Author

Listed:
  • Csaba Tóth G.

    () (PhD student, University of Debrecen)

  • Péter Virovácz

    (research fellow, Századvég Gazdaságkutató Zrt.)

Abstract

In our paper, we have used a database of tax returns from 2011 to assess how the tax reform, implemented in personal income taxation between 2010 and 2013, affected the tax burden of certain social groups and what implications the reforms had on the public finances. Our research follows the principles of positive economics using a static microsimulation model. Our findings reveal that the tax reform reduced government revenues by an annual total of HUF 444 billion. 74 per cent of this amount increased the net income of childless taxpayers in the top two income deciles. Although 63 per cent of the taxpayers with three or more dependent children are winners of the tax reform, in the bottom six income deciles tax liabilities of taxpayers with three or more children have not decreased markedly. Overall, we can conclude that it was income rather than the number of children which primarily affected the tax liabilities of private persons after the implementation of the tax reform. Reducing the tax rate to 9 per cent would result in a further 44 per cent decrease of budget revenues from personal income tax, which – on the basis of the 2011 data – would mean a loss of an additional HUF 522 billion of tax revenues on an annual basis.

Suggested Citation

  • Csaba Tóth G. & Péter Virovácz, 2013. "Winners and Losers. An assessment of the Hungarian flat tax reform with microsimulation," Public Finance Quarterly, State Audit Office of Hungary, vol. 58(4), pages 369-385.
  • Handle: RePEc:pfq:journl:v:58:y:2013:i:4:p:369-385
    as

    Download full text from publisher

    File URL: http://www.asz.hu/public-finance-quarterly-articles/2013/winners-and-losers-an-assessment-of-the-hungarian-flat-tax-reform-with-microsimulation/a-toth-virovacz-2013-4.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Simonovits, András & Cseres-Gergely, Zsombor, 2011. "A személyi jövedelemadó reformjának hatása a társadalombiztosítási nyugdíjakra [The impact of personal income tax reform on public pensions]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1029-1044.
    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. repec:oup:ecpoli:v:20:y:2005:i:43:p:397-444 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Muraközy, Balázs & Reizer, Balázs, 2017. "A magyar vállalati adózás heterogenitása [The heterogeneity of corporate taxation in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1233-1264.
    2. Randall K. Filer & Jan Hanousek & Tomáš Lichard & Karine Torosyan, 2019. "‘Flattening’ tax evasion? : Evidence from the post‐communist natural experiment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 27(1), pages 223-246, January.
    3. International Monetary Fund, 2014. "Hungary; Selected Issues," IMF Staff Country Reports 14/156, International Monetary Fund.
    4. Palotai, Dániel & Baksay, Gergely, 2017. "Válságkezelés és gazdasági reformok Magyarországon, 2010-2016 [Recession management and economic reforms in Hungary, 2010-2016]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 698-722.
    5. Gergely Baksay & Balázs Csomós, 2015. "Analysis of the Changes in the Hungarian Tax System and Social Transfers between 2010 and 2014 Using a Behavioural Microsimulation Model," Society and Economy, Akadémiai Kiadó, Hungary, vol. 37(supplemen), pages 29-64, December.
    6. D�ra Győrffy, 2015. "Austerity and growth in Central and Eastern Europe: understanding the link through contrasting crisis management in Hungary and Latvia," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 129-152, June.
    7. Bruno Martorano, 2015. "Is It Possible to Adjust ‘With a Human Face’? Differences in Fiscal Consolidation Strategies between Hungary and Iceland," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 57(4), pages 623-654, December.
    8. Dóra Győrffy, 2020. "Financial Crisis Management and the Rise of Authoritarian Populism: What Makes Hungary Different from Latvia and Romania?," Europe-Asia Studies, Taylor & Francis Journals, vol. 72(5), pages 792-814, July.
    9. Bruno Martorano, 2014. "Is it possible to adjust ‘with a human face’? Differences in fiscal consolidation strategies between Hungary and Iceland," Papers inwopa719, Innocenti Working Papers.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Friedrich Heinemann & Martin Kocher, 2013. "Tax compliance under tax regime changes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 225-246, April.
    2. D�ra Benedek & Orsolya Lelkes, 2008. "Assessment Of Income Distribution And A Hypothetical Flat Tax Reform In Hungary," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 173-186.
    3. Benczúr, Péter & Benedek, Dóra & Bakos, Péter, 2008. "Az adóköteles jövedelem rugalmassága. Becslés és egy egykulcsos adórendszerre vonatkozó számítás a 2005. évi magyar adóváltozások alapján [The elasticity of taxable income: estimates and flat-tax p," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 733-762.
    4. Karsten Staehr, 2008. "Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia," Bank of Estonia Working Papers 2008-03, Bank of Estonia, revised 30 Oct 2008.
    5. Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Southern Economic Journal, Southern Economic Association, vol. 83(2), pages 437-463, October.
    6. Imam Patrick Amir & Jacobs Davina, 2014. "Effect of Corruption on Tax Revenues in the Middle East," Review of Middle East Economics and Finance, De Gruyter, vol. 10(1), pages 1-24, April.
    7. Stiftung Familienunternehmen (ed.), 2012. "Der Weg zu einer "Agenda 2030": Reformen zwischen objektiver Notwendigkeit und individueller Verweigerung," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 110562.
    8. Clifford Gaddy & William G Gale, 2006. "Russia's FLat-Tax: Myths and facts," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(01), pages 45-49, April.
    9. Socol, Cristian & Marinas, Marius & Socol, Aura Gabriela, 2007. "The flat tax in Romania. A good economic strategy?," MPRA Paper 3166, University Library of Munich, Germany.
    10. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    11. Tamás K. Papp & Elöd Takáts, 2008. "Tax Rate Cuts and Tax Compliance—The Laffer Curve Revisited," IMF Working Papers 08/7, International Monetary Fund.
    12. Nikolay Galabov, 2009. "The Flat Tax – Theory and Practice," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 3-18.
    13. Felix Hammermann & Mark Flanagan, 2009. "What explains persistent inflation differentials across transition economies?1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(2), pages 297-328, April.
    14. Hammermann, Felix & Flanagan, Mark, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," Kiel Working Papers 1373, Kiel Institute for the World Economy (IfW).
    15. Rougé Jean-François & Chopov Borislav, 2016. "Hypercompetition & Fiscal Attractiveness," Economics, Sciendo, vol. 4(2), pages 75-93, December.
    16. Jorge Martinez-Vazquez & Mark Rider & Riatu Qibthiyyah & Sally Wallace, 2006. "Who Bears the Burden of Taxes on Labor Income in Russia?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0621, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    17. Marek Gora & Grzegorz Kula & Magdalena Rokicka & Oleksandr Rohozynsky & Anna Ruzik, 2008. "Social Security, Labour Market and Restructuring: Current Situation and Expected Outcomes of Reforms," ESCIRRU Working Papers 5, DIW Berlin, German Institute for Economic Research.
    18. Duncan, Denvil, 2014. "Behavioral responses and the distributional effects of the Russian ‘flat’ tax," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 226-240.
    19. Salvador Barrios & Viginta Ivaškaitė-Tamošiūnė & Anamaria Maftei & Edlira Narazani & Janos Varga, 2020. "Progressive Tax Reforms in Flat Tax Countries," Eastern European Economics, Taylor & Francis Journals, vol. 58(2), pages 83-107, March.
    20. Anna Lukiyanova, 2015. "Earnings inequality and informal employment in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 469-516, April.

    More about this item

    Keywords

    personal income tax; microsimulation; budget; redistribution; flat tax;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pfq:journl:v:58:y:2013:i:4:p:369-385. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pal Peter Kolozsi) The email address of this maintainer does not seem to be valid anymore. Please ask Pal Peter Kolozsi to update the entry or send us the correct email address. General contact details of provider: https://www.asz.hu .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.