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Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods

Author

Listed:
  • Bibek Adhikari

    () (Department of Economics, Tulane University)

  • James Alm

    () (Department of Economics, Tulane University)

Abstract

Tax reforms are often motivated by their potential to improve economic performance. However, their actual impacts are difficult to quantify. We analyze the impact of flat tax reform on incomes using "synthetic control" methods. We identify the 8 Eastern and Central European countries that adopted flat tax systems between 1994 and 2005, and then compare post-reform GDP per capita of "treated" countries with a convex combination of similar but "untreated" countries, while accounting for the time-varying impact of unobservable heterogeneity. We find positive impacts in all 8 countries, with 7 out of 8 cases significant at the conventional level.

Suggested Citation

  • Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Working Papers 1615, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1615
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    2. Simone Pellegrino & Guido Perboli & Giovanni Squillero, 2017. "Balancing the Equity-efficiency Trade-off in Personal Income Taxation: An Evolutionary Approach," Working papers 044, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    3. Ferman, Bruno & Pinto, Cristine Campos de Xavier & Possebom, Vitor Augusto, 2016. "Cherry picking with synthetic controls," Textos para discussão 420, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    4. Alm, James, 2018. "Is Economics Useful for Public Policy?," Working Paper Series 6824, Victoria University of Wellington, Chair in Public Finance.
    5. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    6. James Alm, 2017. "Is Economics Useful for Public Policy?," Working Papers 1702, Tulane University, Department of Economics.
    7. Maïmouna DIAKITE & Jean-François BRUN & Souleymane DIARRA & Nasser ARY TANIMOUNE, 2017. "The effects of tax coordination on the tax revenue mobilization in West African Economic and Monetary Union (WAEMU)," Working Papers 201712, CERDI.
    8. Bibek Adhikari, 2015. "When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from the Synthetic Control Method," Working Papers 1524, Tulane University, Department of Economics, revised Nov 2015.
    9. Joshua C. Hall & Josh Matti & Yang Zhou, 2017. "The Economic Impact of City-County Consolidations: A Synthetic Control Approach," Working Papers 17-08, Department of Economics, West Virginia University.
    10. Bibek Adhikari & Romain A Duval & Bingjie Hu & Prakash Loungani, 2016. "Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method," IMF Working Papers 16/171, International Monetary Fund.
    11. Muhammad Jehangir Amjad & Devavrat Shah & Dennis Shen, 2017. "Robust Synthetic Control," Papers 1711.06940, arXiv.org.
    12. Bibek Adhikari & James Alm, 2015. "Did Latvia's Flat Tax Reform Improve Growth?," Working Papers 1516, Tulane University, Department of Economics.

    More about this item

    Keywords

    Flat tax; tax reform; synthetic control methods.;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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