Is a Flat Tax Feasible in a Grown-up Welfare State?
The success of the flat rate tax in Eastern Europe suggests that this concept could also be a model for the welfare states of Western Europe. The present paper uses a simulation model to analyse the effects of revenue neutral flat rate tax reforms on equity and efficiency for the case of Germany. We find that a flat rate tax with a low tax rate and a low basic allowance yields positive static welfare effects amounting to approximately 1.8 per cent of income tax revenue but increases income inequality. The increase in income inequality can be avoided by combining a higher tax rate with a higher basic allowance. But in this case the efficiency gains vanish. We conclude that, due to their limited efficiency effects and their problematic distributional impact, flat tax reforms are unlikely to spill over to the welfare states of Western Europe.
|Date of creation:||Nov 2007|
|Date of revision:|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paulus, Alari & Peichl, Andreas, 2008.
"Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives,"
IZA Discussion Papers
3721, Institute for the Study of Labor (IZA).
- Gerhard Wagenhals, 2004. "Tax-benefit microsimulation models for Germany: A Survey," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 235/2004, Department of Economics, University of Hohenheim, Germany.
- Jerry A. Hausman, 1983.
"Taxes and Labor Supply,"
NBER Working Papers
1102, National Bureau of Economic Research, Inc.
- Ventura, G., 1997.
"Flat Tax Reform: A Quantitative Exploration,"
UWO Department of Economics Working Papers
9706, University of Western Ontario, Department of Economics.
- van Soest, A.H.O. & Das, J.W.M. & Gong, X., 2001.
"A structural labour supply model with flexible preferences,"
Other publications TiSEM
07a46b83-f128-4ea5-8498-9, Tilburg University, School of Economics and Management.
- van Soest, Arthur & Das, Marcel & Gong, Xiaodong, 2002. "A structural labour supply model with flexible preferences," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 345-374, March.
- Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)": Principles and Evidence," IMF Working Papers 06/218, International Monetary Fund.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004.
"Welfare reform in European countries: a micro-simulation analysis,"
EUROMOD Working Papers
EM1/04, EUROMOD at the Institute for Social and Economic Research.
- Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, 01.
- Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers 28, OECD Publishing.
- Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
- Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," IZA Discussion Papers 1810, Institute for the Study of Labor (IZA).
- Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.
- Dunbar, Amy & Pogue, Thomas F., 1998. "Estimating Flat Tax Incidence and Yield: A Sensitivity Analysis," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 303-24, June.
- Heer, Burkhard & Trede, Mark, 2003. "Efficiency and distribution effects of a revenue-neutral income tax reform," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 87-107, March.
- Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2005. "Dokumentation FiFoSiM: Integriertes Steuer-Transfer-Mikrosimulations- und CGE-Modell," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-3, University of Cologne, FiFo Institute for Public Economics.
- Davies, James B. & Hoy, Michael, 2002. "Flat rate taxes and inequality measurement," Journal of Public Economics, Elsevier, vol. 84(1), pages 33-46, April.
- Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
- Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2003. "The Marginal Cost of Public Funds in OECD Countries. Hours of Work Versus Labor Force Participation," CESifo Working Paper Series 935, CESifo Group Munich.
- Daniel T. Slesnick, 1998. "Empirical Approaches to the Measurement of Welfare," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2108-2165, December.
- David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
- Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June.
- Kuismanen, Mika, 2000. "Labour Supply and Income Tax Changes: A Simulation Study for Finland," Research Discussion Papers 5/2000, Bank of Finland.
- Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2006. "Does tax simplification yield more equity and efficiency? An empirical analysis for Germany," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-5, University of Cologne, FiFo Institute for Public Economics.
- Heckman, James, 2013.
"Sample selection bias as a specification error,"
Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
- Schaefer, Thilo & Peichl, Andreas, 2006. "Documentation FiFoSiM: integrated tax benefit microsimulation and CGE model," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-10, University of Cologne, FiFo Institute for Public Economics.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3142. 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: (Mark Fallak)
If references are entirely missing, you can add them using this form.