Flat Tax Reforms in the US: A Boon for the Income Poor

Javier Díaz-Giménez () and Josep Pijoan-Mas ()

No 5812, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this article we quantify the aggregate, distributional and welfare consequences of two revenue neutral flat-tax reforms using a model economy that replicates the U.S. distributions of earnings, income and wealth in very much detail. We find that the less progressive reform brings about a 2.4% increase in steady state output and a more unequal distribution of after-tax income. In contrast, the more progressive reform brings about a -2.6% reduction in steady state output and a distribution of after-tax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17% of consumption, and in the more progressive flat-tax economy it increases by 0.45% of consumption. In both flat-tax reforms the income poor pay less income taxes and obtain sizeable welfare gains.

Keywords: earnings distribution; efficiency; flat-tax reforms; income distribution; inequality; wealth distribution (search for similar items in EconPapers)
JEL-codes: D31 E62 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-dge, nep-mac, nep-pbe and nep-pub
Date: 2006-09
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Related works:
Working Paper: FLAT TAX REFORMS IN THE U.S.: A BOON FOR THE INCOME POOR (2006)
Working Paper: Flat Tax Reforms in the U.S.: a Boon for the Income Poor (2006)
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