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Perspectives Of The Flat Rate Tax Within The Context Of The Economic Crisis

Author

Listed:
  • Mihaila, Nicoleta

    (Centre for Financial and Monetary Research “Victor Slăvescu”, Romanian Academy)

Abstract

In 1981, Robert Hall and Alvin Rabushka were formulating in the Wall Street Journal, in a paternalist manner, the contemporary argument in favour of the flat rate tax. The main advantage of the flat tax is the simplicity of the fiscal system. Then, a lower taxation will stimulate saving, the investments and the entrepreneurial spirit, which will support the general economic progress. The flat tax is regarded by its initiators a tax on consumption, because the new investments are exempted from taxation. Thus, the flat tax should stimulate the economy on the offer side. The results show that the countries where the flat tax has been introduced didn't accomplish this condition, and the new investments were not exempt from taxation. On the contrary, and the case of Romania is relevant, the flat tax stimulated the economy on the demand side, which increased very fast consumption and deepened the current account deficit.

Suggested Citation

  • Mihaila, Nicoleta, 2010. "Perspectives Of The Flat Rate Tax Within The Context Of The Economic Crisis," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 14(3), pages 102-113.
  • Handle: RePEc:vls:finstu:v:14:y:2010:i:3:p:102-113
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    More about this item

    Keywords

    flat tax; progressive taxation; international comparisons; economic agent; state; economic crisis;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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