Growth Effects of Shifting from a Graduated‐rate Tax System to a Flat Tax

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe introduction of a ‡at 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 e¤ects are expected. Despite these advantages, a ‡at rate tax is not very popular in most Western European countries. The most important objection against a ‡at tax states that a ‡at 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 e¢ ciency e¤ects as indicators for the political feasibility of ‡at rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the e¤ects of ‡at tax reforms in terms of equity and e¢ ciency. A ‡at rate tax with a higher basic allowance and a higher single rate has less harmful distributional e¤ects than a ‡at 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 signi…cantly positive welfare e¤ects. 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 ‡at tax reforms to invade the grown-up welfare states of "Old Europe".JEL Codes: D31, D60, H20

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“…Therefore, narrow tax bases might be disadvantageous for a given 29 C.f. Stokey and Rebelo (1995) or Cassou and Lansing (2004). 30 C.f.…”

Section: Discussionmentioning

confidence: 99%

Is a Flat Tax Politically Feasible in a Grown-Up Welfare State?

2007

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“…These finding are supported by Ventura (1999) and Altig et al (2001). Cassou and Lansing (2004) find that a flat tax reduces growth in the short run if revenue-neutrality is maintained, but increases capital accumulation and growth in the long run. Nielsen et al (1999) find significant efficiency gains but negative distributional effects for a flat tax in Denmark.…”

Section: Introductionmentioning

confidence: 78%

The Benefits and Problems of Linking Micro and Macro Models — Evidence from a Flat Tax Analysis

Peichl

2009

Journal of Applied Economics

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SOEPpapers on Multidisciplinary Panel Data Research at DIW BerlinThis series presents research findings based either directly on data from the German SocioEconomic Panel Study (SOEP) or using SOEP data as part of an internationally comparable data set (e.g. CNEF, ECHP, LIS, LWS, CHER/PACO). SOEP is a truly multidisciplinary household panel study covering a wide range of social and behavioral sciences: economics, sociology, psychology, survey methodology, econometrics and applied statistics, educational science, political science, public health, behavioral genetics, demography, geography, and sport science.The decision to publish a submission in SOEPpapers is made by a board of editors chosen by the DIW Berlin to represent the wide range of disciplines covered by SOEP. There is no external referee process and papers are either accepted or rejected without revision. Papers appear in this series as works in progress and may also appear elsewhere. They often represent preliminary studies and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be requested from the author directly.

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“…These two well-known models provide us with some insight as to the role of technological progress, as well as of physical and human capital accumulation in economic growth. These important themes also feature in the more complex, dynamic equilibrium model by Cassou and Lansing (2003), which is the workhorse of this paper's analysis.…”

Section: Economic Growthmentioning

confidence: 97%

“…THE CASSOU-LANSING MODEL Cassou and Lansing (2003) construct a dynamic equilibrium model to simulate the effects that changes in the tax code have on the long-term growth rate. The model economy consists of a representative household, the government, and a firm that encompasses the entire productive economy.…”

Section: Hlavac 27mentioning

confidence: 99%

“…We, furthermore, calculate the post-reform transition dynamics for variables such as the economic growth rate, the representative household's utility expressed in consumption-equivalent variations following Lucas (2003), the allocation of time to education and market work, or the interest and wage rates. In doing so, we rely on a dynamic equilibrium model proposed by Cassou and Lansing (2003), calibrated to fit historical data about the U.S. economy and the Internal Revenue Service (IRS) tax return statistics for the 2005 tax year. Finally, we comment on the political implications of our findings, and suggest potential avenues for further research.…”

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confidence: 99%

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