Flat-Rate versus Progressive Taxation? An Impact Evaluation Study for the Case of Romania

Taking into consideration the recent debates on adopting a progressive tax system over the flat-rate taxation, our paper aims to investigate the impact of a change in the current Romanian personal income tax policy system from the 10% flat-rate tax system to some alternative progressive taxation sce...

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Bibliographic Details
Published in:Sustainability 2019-11, Vol.11 (22), p.6405
Main Authors: Popescu, Madalina Ecaterina, Militaru, Eva, Stanila, Larisa, Vasilescu, Maria Denisa, Cristescu, Amalia
Format: Article
Language:English
Subjects:
Budget deficits
Economic conditions
Economic growth
Employment
Equity
Fiscal policy
Income distribution
Income inequality
Income taxes
Industrialized nations
Living conditions
Low income groups
Policy reform
Poverty
Progressive taxes
Recessions
Socioeconomics
Sustainable development
Tax increases
Tax rates
Taxation
VAT
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Summary:Taking into consideration the recent debates on adopting a progressive tax system over the flat-rate taxation, our paper aims to investigate the impact of a change in the current Romanian personal income tax policy system from the 10% flat-rate tax system to some alternative progressive taxation scenarios. The methodological approach consisted in using the European Union Survey on Income and Living Conditions (EU-SILC) database to micro-simulate the impact upon poverty and income inequality. Through our ex-ante tax policy analysis we bring empirical evidence of a modest, but positive effect upon poverty rate and income inequalities in favor of a progressive taxation system. However, when looking at the government financial implications through the personal income tax budget revenues, we discuss upon the possible trade-off between the benefits on poverty and income inequalities and the possible budgetary drawbacks. Despite the data limitations, this study has the benefit of being among the first attempts to evaluate the impact of a personal income tax policy reform for the case of Romania.
ISSN:2071-1050
2071-1050
DOI:10.3390/su11226405