| By: |
Marta González;
Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: |
This paper quantifies the macroeconomic and distributional implications of an
array of flat tax reforms for Spain. A standard general equilibrium economy
with heterogeneous agents is used to infer the behavioral parameters of
individuals and to evaluate the impact of the tax reforms. We find that a
revenue neutral reform with a marginal tax equal to 17.42% and a fixed
deduction equal to 15% of per capita income will yield increases in aggregate
consumption and labor productivity equal to 7.6% and 2.5% respectively.
Admittedly, this type of reforms also generate increases in the gini indices
of after tax income and consumption. However, a revenue neutral flat tax
reform with a marginal tax equal to 23.37% and a fixed deduction equal to 35%
still displays aggregate gains and has the good property that people in the
lowest quintile of wage distribution pay lower taxes and enjoy higher
consumption than under the current income tax. |
| Keywords: |
Income tax, policy reform, heterogeneous agents, general equilibrium. |
| JEL: |
H31 E62 D31 C68 |
| Date: |
2005–05 |
| URL: |
http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2005_0505&r=pbe |