Is a Flat Tax politically feasible in a grown-up Welfare State?
The introduction of a flat tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth effects are expected. Despite these advantages, a flat rate tax is not very popular in most Western European countries. The most important objection against a flat tax states that a flat rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and efficiency effects as indicators for the political feasibility of flat rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the effects of flat tax reforms in terms of equity and efficiency. A flat rate tax with a higher basic allowance and a higher single rate has less harmful distributional effects than a flat rate tax with low basic allowance and tax rate. Nevertheless, the scenario with the lowest parameter values for basic allowance and tax rate is the only alternative that leads to positive labour supply and significantly positive welfare effects. Both labour supply and static welfare e¤ects, however, are quite small. Although we have derived our results for the case of Germany, we do think that similar patterns would be observed in other countries of Western Europe. If this proves to be correct, it will be hard for flat tax reforms to invade the grown-up welfare states of "Old Europe".
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (0)221 / 13 97 51 0
Fax: (0)221 / 13 97 51 11
Web page: http://www.fifo-koeln.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.:
- Gustavo Ventura, .
"Flat Tax Reform: A Quantitative Exploration,"
Computing in Economics and Finance 1997
172, Society for Computational Economics.
- Hausman, Jerry A., 1985.
"Taxes and labor supply,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 4, pages 213-263
- David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
- Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
- 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.
- Fuest, Clemens, 2000. "Steuerpolitik und Arbeitslosigkeit," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 11, number urn:isbn:9783161474583, Abril.
- Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June.
- 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.
- 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.
- repec:cup:cbooks:9780521233293 is not listed on IDEAS
- 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.
- Nada Eissa & Jeffrey B. Liebman, 1995.
"Labor Supply Response to the Earned Income Tax Credit,"
NBER Working Papers
5158, National Bureau of Economic Research, Inc.
- Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
- Mroz, Thomas A, 1987.
"The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions,"
Econometric Society, vol. 55(4), pages 765-99, July.
- Thomas Mroz, . "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," University of Chicago - Population Research Center 84-8, Chicago - Population Research Center.
- Blundell, Richard & Macurdy, Thomas, 1999.
"Labor supply: A review of alternative approaches,"
Handbook of Labor Economics,
in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695
- McFadden, Daniel L., 1984. "Econometric analysis of qualitative response models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 24, pages 1395-1457 Elsevier.
- Stokey, Nancy L & Rebelo, Sergio, 1995.
"Growth Effects of Flat-Rate Taxes,"
Journal of Political Economy,
University of Chicago Press, vol. 103(3), pages 519-50, June.
- Heckman, James, 2013.
"Sample selection bias as a specification error,"
Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
- Steven P. Cassou & Kevin J. Lansing, 2004. "Growth Effects of Shifting from a Graduated-rate Tax System to a Flat Tax," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 194-213, April.
- Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
- 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.
- Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007.
"Welfare reform in European countries: a microsimulation analysis,"
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 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.
- 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).
- 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.
- Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, March.
- repec:cup:cbooks:9780521027922 is not listed on IDEAS
- 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.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- 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.
- 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.
- Robert K. Triest, 1990. "The Effect of Income Taxation on Labor Supply in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 491-516.
- 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.
- Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)"; Principles and Evidence," IMF Working Papers 06/218, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:zbw:uoccpe:5611. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.