Behavioral responses and the distributional effects of the Russian ‘flat’ tax

Denvil Duncan

Journal of Policy Modeling, 2014, vol. 36, issue 2, 226-240

Abstract: This paper simulates the distributional impact of the Russian personal income tax (PIT) following the flat tax reform of 2001 using data from the Russian Longitudinal Monitoring Survey. I decompose the change in the distribution of net income into a direct (tax) effect and an indirect effect. The indirect effect is further decomposed into evasion and productivity effects using existing estimates of these respective elasticities. As expected, the direct tax effect increased net income inequality. Changes in the pre-tax distribution (indirect effect), on the other hand, had a large negative impact on inequality thus leading to an overall decline in net income inequality. I also find that the tax-induced evasion response increased reported net income inequality while reducing consumption inequality. To the extent that consumption approximates actual income, these results demonstrate that the flat tax reform had a much smaller effect on actual income inequality than on reported income inequality. More importantly, relative to non-tax factor, the reform had little overall effect on income inequality. This suggests that objection to flatter tax schedules on the grounds of income inequality is mostly misguided, especially in transitional countries with high levels of evasion.

Keywords: Income distribution; Evasion; Simulation; Taxes; Consumption (search for similar items in EconPapers)
JEL-codes: D3 D63 H24 H26 H31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893814000222
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:36:y:2014:i:2:p:226-240

DOI: 10.1016/j.jpolmod.2014.01.011

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().