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Effects of flat tax reforms in Western Europe on equity and efficiency

  • Paulus, Alari
  • Peichl, Andreas

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency e¤ects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.

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File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/iser/2008-06.pdf
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Paper provided by Institute for Social and Economic Research in its series ISER Working Paper Series with number 2008-06.

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Date of creation: 13 Mar 2008
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Publication status: published
Handle: RePEc:ese:iserwp:2008-06
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Web page: https://www.iser.essex.ac.uk/
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