Flat tax reforms: a general equilibrium evaluation for Spain

Marta González-Torrabadella and Josep Pijoan-Mas ()

Investigaciones Economicas, 2006, vol. 30, issue 2, pages 317-351

Abstract: This paper quantifies the aggregate and distributional implications of an array of revenue neutral flat tax reforms for Spain. A standard general equilibrium economy with heterogeneous agents is used to evaluate the impact of the tax reforms. We find that different flat tax reforms may generate important changes of aggregate allocations in opposite directions. Among all the reforms, a marginal tax equal to 23.11% and a fixed deduction equal to 30% of per capita income will yield increases in aggregate output, aggregate consumption and labor productivity equal to 5.1%, 4.8% and 2.8% respectively. Admittedly, this type of reforms also generate increases in the gini indexes of after tax income and consumption. However, the proposed reform reduces the tax bill of the bottom 60% of the income distribution.

Keywords: Income tax; heterogeneous agents; general equilibrium (search for similar items in EconPapers)
JEL-codes: H31 E62 C68 (search for similar items in EconPapers)
Date: 2006
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