Analyzing a Flat Income Tax in the Netherlands

Ruud de Mooij, Bas Jacobs and Kees Folmer

No 1890, CESifo Working Paper Series from CESifo

Abstract: A flat tax rate on income has gained popularity in European countries. This paper assesses the attractiveness of such a flat tax in achieving redistributive objectives with the least cost to labour market performance. We do so by using a detailed applied general equilibrium model for the Netherlands. The model is empirically grounded in the data and encompasses decisions on hours worked, labour force participation, skill formation, wage bargaining between unions and firms, matching frictions, and a wide variety of institutional details. The simulations suggest that the replacement of the current tax system in the Netherlands by a flat rate will harm labour market performance if aggregate income inequality is contained. This finding bolsters the notion that a linear tax is less efficient than a non-linear tax to obtain redistributive goals.

Keywords: flat tax; labour market; general equilibrium; equity; optimal taxation (search for similar items in EconPapers)
JEL-codes: D30 D50 H20 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Analyzing a Flat Income Tax in the Netherlands (2007)
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