Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86478
Authors: 
Jacobs, Bas
de Mooij, Ruud A.
Folmer, Kees
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-029/3
Abstract: 
A flat tax rate on income has gained popularity in European countries. This paper assesses the attractiveness of such a flat tax in achieving redistributive objectives with the least cost to labour market performance. 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, matching frictions, 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. This finding bolsters the notion that a linear tax is less efficient than a non-linear tax to obtain redistributive goals.
Subjects: 
Flat tax
Labour market
General equilibrium
Equity
Optimal taxation
JEL: 
D3
D5
H2
Document Type: 
Working Paper

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