Taxation and Redistribution: Some Clarifications

Abstract

This essay revisits certain basic features of tax systems as they relate to redistribution. It focuses on how the actual differences between proportional and graduated taxes with regard to redistribution diverge in important ways from what many believe or implicitly assume. The analysis seeks to clarify tax policy debates, including those surrounding classic treatments of progressivity and contemporary flat tax proposals.1 There are limitations to this aggregation approach because only under very restrictive assumptions, which almost surely do not hold in fact, can different family or household units be viewed as the same, subject to a scaling

Why post-communist countries choose the flat tax: A comparative welfare approach

“…The command economies could be viewed as 100% flat tax economies with subsequent redistribution of state revenue to different social groups. This was possible, because the proportional tax is the only type of taxation that makes complete centralization of all incomes theoretically possible and perfectly egalitarian society (100% flat tax), as well as no redistribution at all (0% flat tax) (Kaplow 2003). Given the fact that the transition from command to market economy implies substitution of more or less egalitarian working-class oriented income distribution for higher income inequality (Vecernik 1999), the process can be approximated as a change from extremely high to low rate flat taxation.…”