Assessment of income distribution and a hypothetical flat tax reform in Hungary
The paper presents evidence on the effects of taxes and benefits on household incomes in Hungary referring to the 2006 system and a hypothetical flat tax reform. For this, a microsimulation model is used, which is based on a matched sample of an income and a consumption survey and administrative tax records. The Hungarian budget receives more revenues from VAT than from PIT. This has major implications on equity, as while PIT is progressive, VAT is regressive, imposing a higher tax burden on low-income households. We highlight the importance of tax allowances. The absolute amount of total tax allowances tends to increase with income, and the share of allowances within total incomes is around 5-7% in all income groups, except the top fifth, where it declines. Targeting is thus inadequate, and it is especially so in case of child support. Family tax allowance reaches the bottom decile only to a limited extent. This is in sharp contrast with the universal child benefit, which is well targeted to the poorest. The second part explores the likely impact of the introduction of a flat tax, where VAT and PIT rates are set at 20%, and a tax free bracket for low incomes is kept. We show that a budget neutral solution would have a largely regressive effect, where 70% of the population would lose, with a minority on the top of the distribution gaining.
|Date of creation:||15 Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Lelkes, Orsolya, 2006.
"Tasting freedom: Happiness, religion and economic transition,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 59(2), pages 173-194, February.
- Orsolya Lelkes, 2002. "Tasting Freedom: Happiness, religion and economic transition," CASE Papers case59, Centre for Analysis of Social Exclusion, LSE.
- Anna Ivanova & Michael Keen & Alexander Klemm, 2005.
"The Russian ‘flat tax’ reform,"
CEPR;CES;MSH, vol. 20(43), pages 397-444, 07.
- Michael F. Förster & Istvàn György Toth, 1997. "Poverty, inequalities and social policies in the Visegrad countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(2), pages 505-509, November.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7304. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.