Flat Income Taxation, Redistribution and Labour Market Performance

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[Zeitschriftenartikel]

Mooij, Ruud de; Jacobs, Bas; Folmer, Kees

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Abstract	A flat tax rate on labour income has gained popularity in European countries. This paper assesses the attractiveness of such a flat tax in achieving redistributive objectives with the smallest distortions to employment. 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, 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. Only flat tax reforms that reduce redistribution will raise employment. This finding bolsters the notions from optimal tax literature regarding the equity-efficiency trade off and the superiority of non-linear taxes to obtain redistributive goals in an efficient way.
Klassifikation	Volkswirtschaftstheorie; Wirtschaftspolitik
Sprache Dokument	Englisch
Publikationsjahr	2009
Seitenangabe	S. 3209-3220
Zeitschriftentitel	Applied Economics, 42 (2009) 25
DOI	http://dx.doi.org/10.1080/00036840802112356
ISSN	1466-4283
Status	Postprint; begutachtet (peer reviewed)
Lizenz	PEER Licence Agreement (applicable only to documents from PEER project)