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Flat tax reform in Eastern Europe: a comparative analysis of alternative scenarios in Estonia, Hungary and Slovenia, using EUROMOD

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  • Paulus, Alari
  • Lelkes, Orsolya
  • Kump, NataÅ¡a
  • Cok, Mitja
  • Hegedus, Péter
  • Szivós, Péter
  • Võrk, Andres
  • Kralik, Silja

Abstract

Flat tax schemes are popular in Eastern Europe, with an ever increasing number of countries where it is introduced, and yet many other where it is recurringly discussed. Analysing three countries, we show that the design of such schemes largely determines their impact on fiscal revenues and on the redistribution of individuals’ incomes. The impact, as expected, also largely depends on the characteristics of the existing income tax system. Three different flat tax systems (Estonian, already implemented; Slovenian and Hungarian, only proposals) are simulated in each of the three countries. The analysis is based on EUROMOD, the European tax-benefit microsimulation model, which now includes these countries, enabling cross-country comparisons. The results also confirm the value of EUROMOD which proves to be a valuable tool for international policy comparisons.

Suggested Citation

  • Paulus, Alari & Lelkes, Orsolya & Kump, NataÅ¡a & Cok, Mitja & Hegedus, Péter & Szivós, Péter & Võrk, Andres & Kralik, Silja, 2009. "Flat tax reform in Eastern Europe: a comparative analysis of alternative scenarios in Estonia, Hungary and Slovenia, using EUROMOD," EUROMOD Working Papers EM9/09, EUROMOD at the Institute for Social and Economic Research.
    • Handle: RePEc:ese:emodwp:em9-09
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    References listed on IDEAS

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    1. Paulus, Alari & Peichl, Andreas, 2008. "Effects of flat tax reforms in Western Europe on equity and efficiency," ISER Working Paper Series 2008-06, Institute for Social and Economic Research.
    2. Paulus, Alari & Peichl, Andreas, 2009. "Effects of flat tax reforms in Western Europe," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 620-636, September.
    3. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian ‘flat tax’ reform [‘Income tax evasion: A theoretical analysis’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(43), pages 398-444.
    4. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, June.
    5. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
    6. O'Donoghue, Cathal & Sutherland, Holly & Immervoll, Herwig, 1999. "An introduction to EUROMOD," EUROMOD Working Papers EM0/99, EUROMOD at the Institute for Social and Economic Research.
    7. D�ra Benedek & Orsolya Lelkes, 2008. "Assessment Of Income Distribution And A Hypothetical Flat Tax Reform In Hungary," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 173-186.
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    Cited by:

    1. Jakub Boratyński & Jakub Borowski, 2012. "The long-term economic impact of the flat tax in Poland. CGE simulation under alternative assumptions," Bank i Kredyt, Narodowy Bank Polski, vol. 43(3), pages 5-30.

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