PERSPECTIVES OF THE FLAT RATE TAX WITHIN THE CONTEXT OF THE ECONOMIC CRISIS

Nicoleta Mihaila
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Nicoleta Mihaila: Centre for Financial and Monetary Research “Victor Slăvescu”, Romanian Academy

Studii Financiare (Financial Studies), 2010, vol. 14, issue 3, 102-113

Abstract: In 1981, Robert Hall and Alvin Rabushka were formulating in the Wall Street Journal, in a paternalist manner, the contemporary argument in favour of the flat rate tax. The main advantage of the flat tax is the simplicity of the fiscal system. Then, a lower taxation will stimulate saving, the investments and the entrepreneurial spirit, which will support the general economic progress. The flat tax is regarded by its initiators a tax on consumption, because the new investments are exempted from taxation. Thus, the flat tax should stimulate the economy on the offer side. The results show that the countries where the flat tax has been introduced didn't accomplish this condition, and the new investments were not exempt from taxation. On the contrary, and the case of Romania is relevant, the flat tax stimulated the economy on the demand side, which increased very fast consumption and deepened the current account deficit.

Keywords: flat tax; progressive taxation; international comparisons; economic agent; state; economic crisis (search for similar items in EconPapers)
JEL-codes: E26 H25 H26 H32 O11 O23 (search for similar items in EconPapers)
Date: 2010
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