175th mBank-CASE Seminar Proceedings: The Fate of Flat Tax in the EU countries

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7 Dec 2023

Fiscal Policies and Growth

mBank – CASE Seminar Proceedings

Krassen Stanchev

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Krassen Stanchev

Member of the CASE Advisory Council Dr. Krassen Stanchev teaches Public Choice, Macroeconomic Analysis of Politics and history of economic ideas to humanitarian post-graduates at Sofia University, and is a Distinguished Professor of Tbilisi Free University. He is also CEO of KC2 Ltd and Board Chairman, founder and former Executive Director of Institute for Market … <a href="https://case-research.eu/publications/the-fate-of-flat-tax-in-the-eu-countries/">Continued</a>

Since 1989, flat tax (FT) reforms have been attempted in Europe and the EU only by ex-communist countries and Iceland. In the 1990s all ex-communist countries lowered and simplified their income taxes, often starting with corporate taxes. In the late 1990s and early 2000s they also reformed their social security systems. In many respects the tax reforms have never stopped, but with regard to income taxation they are less radical than in the 1990s and at the turn of this century. Even when there were reforms re-establishing progressive taxation, they have almost never returned to complex sets of nominal rates and a steep vertical ladder of progressive thresholds.

This report attempts to reconstruct the reasons why EU countries moved to introduce proportional taxation on either corporate or personal income, or both, as well as the reasons behind five of them returning to progressive taxation. These reforms happened in different political and economic contexts. It would be difficult to identify unequivocal causality between flattening taxes and economic performance. However, the report compares the dynamics of economic growth and factors related to competitiveness for periods before and after the reforms were launched. The same effort has been made for indicators of wealth and disposable income. The analysis allows for a discussion of lessons learnt and of the prospects for further reforms.

The report concludes that it seems impossible to prove that FT systems have been a key contributor to higher economic growth. However, it does seem that, if the social security contributions remain relatively stable and are financed by other tax revenues, they have a positive impact on fiscal performance and general welfare.

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175th mBank-CASE Seminar Proceedings: The Fate of Flat Tax in the EU countries

Krassen Stanchev

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175th mBank-CASE Seminar Proceedings: The Fate of Flat Tax in the EU countries

Krassen Stanchev

Related publications

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