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

Alari Paulus, Orsolya Lelkes, Kump, Nataša, Mitja Cok, Hegedus, Péter, Szivós, Péter, Andres Võrk and Silja Kralik

No EM9/09, EUROMOD Working Papers from EUROMOD at the Institute for Social and Economic Research

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.

Date: 2009-04-01
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