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The Impact of the Flat Tax Reform on Inequality - the case of Romania

Author

Listed:
  • Voinea, Liviu

    (Academy of Economic Studies, Bucharest and Executive Director, Group of Applied Economics)

  • Mihaescu, Flaviu

    (Associate Researcher, Group of Applied Economics)

Abstract

In 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 is, the higher the flat tax gains are. 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 higher the income level, the higher the income elasticity of consumption. We conclude that the flat tax led to increased income inequality and it stimulated households consumption particularly among the wealthiest households.

Suggested Citation

  • Voinea, Liviu & Mihaescu, Flaviu, 2009. "The Impact of the Flat Tax Reform on Inequality - the case of Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 19-41, December.
  • Handle: RePEc:rjr:romjef:v::y:2009:i:4:p:19-41
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paolo Brunori & Flaviana Palmisano & Vito Peragine, 2014. "Income taxation and equity: New dominance criteria and an application to Romania," Working Papers 348, ECINEQ, Society for the Study of Economic Inequality.
    2. Iuliana Precupetu & M. Precupetu, 2013. "GINI Country Report: Growing Inequalities and their Impacts in Romania," GINI Country Reports romania, AIAS, Amsterdam Institute for Advanced Labour Studies.
    3. Liviu Voinea, 2011. "A Contribution to the Public-Private Wage Inequality Debate: The Iconic Case of Romania," wiiw Balkan Observatory Working Papers 93, The Vienna Institute for International Economic Studies, wiiw.
    4. Brad, Anca Maria, 2012. "The impact of tax policy on the welfare state," MPRA Paper 40347, University Library of Munich, Germany.
    5. Oancea, Bogdan & Andrei, Tudorel & Pirjol, Dan, 2017. "Income inequality in Romania: The exponential-Pareto distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 486-498.
    6. Molnar, Maria, 2011. "Income Polarization In Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 64-83, June.

    More about this item

    Keywords

    flat tax; inequality; income distribution; consumption elasticity;

    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
    • I39 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E21 - Macroeconomics and Monetary Economics - - 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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