Flat Tax Research Articles

A Study on the Impact of Indian Taxation on Virtual Digital Assets in India

The study explores the implications of India's taxation policies on Virtual Digital Assets (VDAs), including crypto currencies and non-fungible tokens (NFTs). With the introduction of the Finance Act of 2022, which imposed a 30% tax on VDA profits and a 1% Tax Deducted at Source (TDS) on transactions, the digital asset landscape in India has undergone significant shifts. This research examines the economic and behavioural impact of these regulations on individual investors, start-ups, and the broader VDA ecosystem. The findings suggest that the flat tax rate and TDS have led to reduced market liquidity and deterred small-scale traders, highlighting challenges in compliance and record-keeping. However, these measures also formalize the VDA market, potentially attracting institutional investors by providing regulatory clarity. The study identifies gaps in the current policies and offers recommendations to balance regulation with market growth, ensuring a sustainable future for India's VDA sector.

Lost jobs, new jobs and optimal tax-transfer reforms

AbstractAutomation and globalisation imply deep changes in the labour market. An important policy issue is whether and how the tax-transfer rules should be reformed to help coping with those changes. While the prevailing response has consisted of more sophisticated designs of mean-testing and targeting, we also witness an increasing interest in policies inspired by simplicity. Using a combination of behavioural microsimulation and numerical optimization, we look for a (social welfare) optimal tax-transfer rule within a flexible class where total household disposable income is a 4th-degree polynomial in total household taxable income plus a constant. We use a model of household labour supply that makes it possible to account for equilibrium constraints and evaluate the effects of changes of the labour demand scenario. Beside the (observed) Status quo scenario, we consider two alternative stylized cases: the “Jobless” scenario and the “Polarised” scenario. We simulate and compare the social welfare attained by the current tax-transfer rules under the three scenarios and the social welfare attained by the different polynomial optimal tax-transfer rules identified in each scenario. We present results using the 2015 EU-SILC data sets for France, Germany, Italy and Luxembourg. The polynomial optimal rules are social welfare superior to the current ones in all the countries and under all the scenarios and—with the exception of Luxembourg—are close to a Universal Basic Income (or a Negative Income Tax) plus a not-too progressive tax rule (close to a Flat Tax).

Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity

Abstract This paper quantifies the impact of effective corporate tax rates on aggregate total factor productivity (TFP). Using Chilean manufacturing data, we document a large dispersion in the effective tax rate faced by firms and a mass of firms facing a 0 percent tax rate. We integrate these findings into a standard monopolistic competition model, where firms are subject to corporate taxation and also face output and capital wedges, which represent all other distortions present in the economy. We find that eliminating corporate tax rates increases TFP between 4 and 11 percent. We consider counterfactual policies in which firms face a uniform flat tax rate and find a monotonically decreasing relationship between the level of the tax rate and TFP.

Modelling Wealth and Wealth Inequality in Bulgaria

This paper analyses net wealth and net wealth inequality determinants in Bulgaria, for the 2000-2020 period. The econometric results suggest that the introduction of corporate and individual flat tax rates in 2007 and 2008 contribute to households’ net wealth creation but have no significant association with inequality variables. Interest rates on mortgage loans, cost of debt, budget surpluses and inflation have a negative association with wealth, while the value of houses, arable land, equity, interest income, budget deficits contribute to net wealth growth. The top percentile increases its wealth share supported by the value of houses, equity and positive current account to Gross Domestic Product (GDP) values, however the cost of debt and GDP per capita are in a negative association with top percentile inequality. The bottom half of the population increases its wealth share with higher GDP per capita values and higher consumer loans rates, however inflation affects it negatively. Inflation and investment income are in a positive association with the Gini coefficient, while interest rates on consumer loans, cost of debt, GDP per capita, Government revenues, dividend income, equity, and the value of houses reduce inequality.

The redistributive effect of the Hungarian flat tax and family allowance system

AbstractThe study examines the income redistribution effects of the Hungarian flat-tax and the recently introduced family allowance scheme. They were done on the basis of people's individual data for 2007, 2011 and 2020, which yields more accurate estimates than the previous studies based on aggregate or survey data. Between 2011 and 2013, progressive taxation was abolished, and a flat income tax was introduced, along with a substantial widening of pre-existing family tax allowances. We find that the tax reform has favoured high-income earners and taxpayers with children, while the main losers were low-income and/or childless workers. While the share of family tax allowances is somewhat lower for the high-income deciles, this effect is in practice negligible, therefore the income tax system can still be considered flat. The family tax allowance scheme favours wealthy families with many children over low-income families with fewer or no children. The biggest winners of the scheme are the taxpayers in the top income decile with three or more children: these 22,000 taxpayers (that is, 2% of all recipients) receive 10% of the total amount of the family tax allowance, and almost a third of the credit allocated to families with three or more children.

Tax reforms during the war: analysis of social and economic consequences

Introduction. The taxation system in any country plays an important role in regulating economic processes and ensuring the financial stability of the state. In periods of wars and global crises, such a system becomes especially important, as taxes are one of the main sources of revenue for the budget and can significantly affect the economic situation of the country. Implementing effective tax reforms in wartime is always a difficult task. Ukraine, which is actively fighting against Russian aggression, also faced the need to implement tax reforms to ensure financial stability and support society. In these conditions, guided by the needs of the country, the Ukrainian authorities made significant changes to the taxation system. Before the introduction of tax reforms, Ukraine faced a number of serious challenges. The invasion of Russia in 2022 was accompanied by irreparable damage, occupation of territories, destruction of infrastructure, mass migration of the population and great social and economic difficulties. The war not only led to a humanitarian crisis, but also seriously undermined the financial stability of the state. Before the start of the conflict, the Ukrainian economy was already under internal stress, and military actions limited the country's ability to function normally and sustain economic growth. The purpose of the paper is to study the effectiveness of tax reforms introduced during martial law, to analyze the social and economic consequences. Results. To ensure financial stability in wartime conditions and overcome economic difficulties, the authorities adopted a number of measures aimed at reducing the tax burden on business and entrepreneurs. One of the key reforms was the introduction of a simplified taxation system for enterprises with a small turnover, where the tax rate was only 2% of turnover. This decision made taxation more transparent and simple for entrepreneurs, and also allowed to reduce tax payments, even in the absence of actual profit. Tax incentives have been introduced for taxes such as flat tax, value added tax, income tax, customs duty and excise duty. The state also eased the procedure for taxing charitable assistance and support for the Armed Forces of Ukraine. Conclusion. All these tax decisions had both positive and negative economic and social consequences. It is important to emphasize that the effectiveness of wartime tax reforms is evaluated in the long term, and their impact can be difficult to estimate in advance. Therefore, it is necessary to constantly analyze, evaluate and adjust according to the current realities and conditions of today.

Should Italy switch to a flat tax? An assessment based on a heterogeneous agents OLG model

We use a heterogeneous agents overlapping generations (OLG) model to quantitatively assess the impact of a reform in which a personal income tax with increasing marginal tax rates is replaced by a flat tax possibly complemented with a deduction. The value of the flat tax rate is set in order to balance the government budget and accordingly it increases with the value of the deduction. The model is calibrated and simulated for Italy. For low values of the deduction, aggregate labor supply increases, though this aggregate effect masks a completely different impact on the intensive and the extensive margin of labor supply: in particular, the activity rate is reduced by the introduction of a flat tax. As to inequality, it rises and this increase can be mitigated by using an higher value of the tax deduction, which however dampens down the positive effect of a flat tax on economic performance. Finally, the effect of a flat tax on social welfare crucially depends on the degree of inequality aversion embedded in the social welfare function and on the Frisch elasticity of labor supply.

The Hidden Effects of the Flat Tax Rate in Central and Eastern European Countries

The Hidden Effects of the Flat Tax Rate in Central and Eastern European Countries

A THEORETICAL ANALYSIS OF THE NEW POLISH INCOME TAX SYSTEM

The research objective of this article is to present changes incorporated into the Polish income tax system and their potential influence on entrepreneurs’ behaviour. One of the most important features of the income taxation system for Polish entrepreneurs is that they can choose the rules of taxation. Under certain conditions, they can apply a progressive scale tax, a flat tax, or a revenue-based tax. The changes introduced in the year 2022 mean that for many entrepreneurs, the burden of taxation has increased. The theoretical and model analysis presented in this article revealed that for many of them, the revenue-based tax has become (or always has been) the optimal form of taxation. The analysis also indicates a serious problem with this form of taxation in the context of equity. This study may provide a basis for further research on the impact of tax perturbations on business activity, business structure, and costs of compliance.

Simplicity and Complexity in Law and in Markets

Richard Epstein’s Simple Rules for a Complex World is true to its title and to the author’s demonstrated genius over a long career. It is a libertarian-oriented enterprise in that it requires the reader to share in the belief that government programs are often wasteful and subject to unattractive interest group pressures and corrupt bureaucracies. More generally, Simple Rules is framed against a background in which the reader must share the libertarian view that individuals can and should be trusted to look after themselves and to make their own choices. Epstein likes “simple” rules; these include strict liability, a flat tax, fee simple, and so forth. He argues that more complexity invites errors and corruption, and arguments for complexity undervalue individuals’ ability to bargain and otherwise fend for themselves. People know what is good for them far more than lawmakers. Anyone who does not share these fundamental views might be frustrated when reading this important book, unless perhaps the belief in redistribution and market failures is so great that one is willing to set aside the enormous costs of government failure. In any event, an insightful and friendly (and terrific) critique of the book has already been written by John Harrison, who thinks of Epstein’s book as a myth: What role should law play if the world were as Epstein (and perhaps Harrison and others among us) wishes it to be? As such, this Essay is neither a review nor a reaction, but instead offers the following two ideas that are stimulated by the book.

Mill's Constitution of Liberty: an alternative behavioural policy framework

AbstractThis paper offers an interpretation of the behavioural evidence that casts doubt over whether people always have preferences or, if they do, that they are stable. If people do not have preferences in this sense, then the usual policy evaluation standard of preference satisfaction cannot be used in these cases. The paper then develops, to fill this gap, a Millian policy framework where policy is judged by whether it advances what Mill understands by individual liberty in On Liberty. This yields many recognisable policies but offers a different evaluative standard for them. It also yields some policy innovations: e.g. a basic income and a flat tax.

Forming a Policy for Tax Reform and Flat Tax Implementation

Forming a Policy for Tax Reform and Flat Tax Implementation

Corporate Governance and Tax Management

This study aims to examine the effect of corporate governance on tax management which is proxied by a cash effective tax rate. The corporate governance mechanisms used are institutional ownership, audit committees, independent commissioners, and external auditors. The population in this study is manufacturing companies listed on the Stock Exchange after the imposition of a flat tax rate of 25%, in period 2015 to 2018. This study uses purposive sampling criteria so that the samples obtained are 48 companies. The type of data used in this study is secondary data. The data analysis technique in this study uses multiple linear regression analysis. The results of this study indicate that institutional ownership has a significant positive effect on tax management; the audit committee has no significant negative effect on tax management; independent commissioners have insignificant negative effect on tax management, and external auditors have significant positive effect on tax management

Macroeconomic and distributive effects of increasing taxes in Spain

I assess the macroeconomic and redistributive effects of tax reforms aimed at increasing tax revenue in Spain. To this end, I develop a theory of entrepreneurship that mimics key facts on the wealth and income distribution in Spain. I find two reforms that raise fiscal pressure in Spain to the average value among countries in the Euro area. The first reform involves doubling the average effective tax rate on labor and business income for all individuals whose income is above a threshold level. I find that this reform reduces the inequality in after-tax income, wealth, and consumption. However, it implies a substantial GDP reduction. The second reform increases the flat tax rate on consumption by fifteen percentage points. While this reform does not reduce long-run output, it does not decrease household inequality. All in all, the desirability of the two reforms depends on the government’s preferences for reducing inequality at the expense of aggregate output losses.

The animal welfare cost of meat: evidence from a survey of hypothetical scenarios among Belgian consumers

ABSTRACT A survey in Belgium with hypothetical scenarios concerning willingness to pay to avoid the experiences of farm animals is used to estimate the animal welfare costs of meat production. Most participants indicate that farm animals have lives not worth living. The median estimate of the animal welfare cost of chicken meat is 10 euro/kg, whereas its mean estimate is several orders of magnitude higher. The animal welfare costs of meat are likely much larger than the consumer utility of meat consumption, the consumer willingness to pay for higher animal welfare meat and the climate/environmental costs of meat. A demand shift from beef to chicken meat due to misaligned consumer concerns for animal welfare or a carbon tax on meat, could possibly increase animal welfare costs and decrease the non-anthropocentric social welfare function. Consumers could prioritize lowering chicken meat consumption and governments could implement a flat tax on meat.

Do tax policies discriminate against female traders? A gender framework to study informal marketplaces in Nigeria.

Scholars have long debated formalizing the informal sector through taxation, but how do these processes affect gender inequalities? Our study in Nigerian markets contributes a gender framework to the equitable taxation literature on formalization. The study draws on a survey of 451 traders in 12 markets, key informant interviews, and ethnographic research in four markets of two states. We find that in at least two situations taxation policies discriminated against women implicitly: (1) male tax collectors had higher incidences of harassment on all traders and (2) taxing traders with flat taxes penalized women, as they earned less than men but were taxed the same.

Efficient redistribution

What is the optimal shape of non-linear income and wealth taxes? We answer this question using a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. The incremental welfare gains from steeper marginal income and wealth taxes are small, especially when the planner has a strong preference for redistribution, due to strong behavioral and general equilibrium effects.

ОСОБЛИВОСТІ ОПОДАТКУВАННЯ В УМОВАХ ДІЇ ВОЄННОГО СТАНУ

To liberalise taxation and support business during martial law, the government introduced a 2% rate on turnover instead of VAT and income tax. The calculations confirm the planned reductions in budget revenues as a result of changes in the tax system; these reductions are not likely to be temporary. The changes introduced by the government are not a tax reform, but a need to support taxpayers during the russian federation's aggression. In such a difficult economic environment for domestic enterprises, it is relevant to study advantages and disadvantages of a new tax policy, which may (or may not) be pursued even after the repeal of martial law. The analysis of the economic nature of universal excise taxes or, as they are also called, consumption taxes (value-added tax, turnover tax, sales tax), proved that the most transparent administration and accrual are characteristic of the retail sales tax. It was studied that when levying a retail sales tax, it was difficult to identify the end-user. The disadvantage is that the state budget receives money once at the stage of the commodity last sale. A value-added tax would optimally balance budget revenues. However, the VAT mechanism is considered by most experts to be extremely corrupt due to the end-to-end control by government agencies over the actual payment of VAT, resulting in the embezzlement of public funds. Among the radical options for VAT reform, the proposal to replace VAT with a turnover tax is often considered. We fully support the generalization that the tax pyramiding of the accrual of turnover tax is a prerequisite for abandoning it all the same in favour of value added tax. Moreover, it is impossible to integrate the Ukrainian tax system into the European one without VAT. At the same time, EU tax legislation provides for simplified VAT procedures as flat-rate schemes, which is implemented in domestic practice in the form of a flat tax mechanism. Based on this study, it can be argued that the current taxation model in Ukraine is universal, namely, a combination of VAT and turnover tax application for business entities. The main objective shall be further improvement of these payments and their administration.

Tax Lawyers, Tax Defiance, and the Ethics of Casual Conversation

Each profession entails a risk for a different kind of casual conversation its members must endure. Medical doctors probably endure casual conversations about pains and rashes, second guesses of primary care physicians, and disorganized thoughts about health care reform, prescription drugs, vitamin C, and chelation. Pastors, priests, and rabbis probably endure unbridled enthusiasm for ecumenical dialogue and experience. Lawyers listen to horror stories of divorce and custody battles, disorganized thoughts on tort reform, and, of course, lawyer jokes, most of which are not new, few of which are funny, and none of which are clever. Specialists within each profession suffer with specific conversations. The psychiatrist and the dermatologist risk different conversations, as do the tax lawyer and the criminal defense lawyer. The conversational risks of tax lawyers are fairly predictable. First are those conversations premised on confusing us with accountants, usually beginning with an inquiry as to our annual April 15th-related workload. Second are political conversations, usually about tax rates—especially those on capital gains, corporations, and estates. Some while back, the conversation was likely to begin with the wonders of the so-called flat tax, and no doubt the flat tax proposals will circle back again in our casual conversations. (Recently a medical doctor engaged me on the wonders of the flat tax, and given his conversation ensued during a medical procedure, I found myself more enamored with the proposal than ever before.) Perhaps the most common political tax topic at the moment is the income tax burden borne at the top and the income tax ease enjoyed on the bottom. The third common casual conversation topic for tax lawyers has to do with tax gimmicks and, especially, rumors of tax gimmicks. With this kind of conversation, tax lawyers are fairly skilled in conversational evasiveness, worrying about unintentionally forming an attorney-client relationship. Our fears related to this kind of conversant are not merely avoiding ethical issues or providing undeserved free legal advice but more so avoiding inviting him or her into a professional relationship. Clients interested in the latest tax gimmicks must be avoided, and those willing to chat-up strangers about tax advice are especially to be avoided.

A Traveler Incentive Program for Promoting Community-Based Ridesharing

Traffic congestion has become a serious issue around the globe, partly owing to single-occupancy commuter trips. Ridesharing can present a suitable alternative for serving commuter trips. However, there are several important obstacles that impede ridesharing systems from becoming a viable mode of transportation, including the lack of a guarantee for a ride back home as well as the difficulty of obtaining a critical mass of participants. This paper addresses these obstacles by introducing a traveler incentive program (TIP) to promote community-based ridesharing with a ride back home guarantee among commuters. The TIP program allocates incentives to (1) directly subsidize a select set of ridesharing rides and (2) encourage a small, carefully selected set of travelers to change their travel behavior (i.e., departure or arrival times). We formulate the underlying ride-matching problem as a budget-constrained min-cost flow problem and present a Lagrangian relaxation-based algorithm with a worst-case optimality bound to solve large-scale instances of this problem in polynomial time. We further propose a polynomial-time, budget-balanced version of the problem. Numerical experiments suggest that allocating subsidies to change travel behavior is significantly more beneficial than directly subsidizing rides. Furthermore, using a flat tax rate as low as 1% can double the system’s social welfare in the budget-balanced variant of the incentive program.