Progressive Tax Reforms in Flat Tax Countries

Abstract

The adoption of flat tax systems in Central and Eastern European countries have often been supported by arguments of simplicity, higher\ncompliance and lower distortionary effects. However, since income inequality is high in these countries, the question of introducing some\nprogressivity has come to the fore in both policy and academic circles. In this paper, we combine microsimulation and macro models to analyze\nthe effects of moving from a flat to a progressive tax system and we find that a reduction in income inequality can be achieved with positive,\nalbeit negligible, employment and growth impact.