Flat tax definition10/10/2023 The Russian experience would appear to have been so successful that many other countries have followed suit with their own flat rate income tax reforms, and an increasing number of countries around the world are considering the adoption of a flat rate income tax. Besides this revenue yield performance, advocates also have credited the flat tax with beneficial changes in the real side of the economy. Over the next year after the reform, while the Russian economy grew at almost 5% in real terms, revenues from the personal income tax increased by over 25% in real terms. The Tax Code of 2001 replaced a conventional progressive rate structure with a flat tax rate of 13 percent. In January 2001, Russia introduced a fairly dramatic reform of its personal income tax, becoming the first large economy to adopt a flat tax. Recently, some countries have even taken more radical steps in the same direction. Given these considerations, it is not surprising that over the last two decades there has been a global trend toward the gradual reduction in the level and progressivity of personal income tax rates. Indeed, the high elasticity of taxable income with respect to tax rates typically reported in the public finance literature implies sizable deadweight losses in the presence of high personal income tax rates (e.g., Feldstein, 1995). High personal income tax rates are also often associated with negative effects on the real side of the economy. It is widely believed that high personal income tax rates are partially responsible for high levels of tax evasion everywhere, especially in emerging markets. Tax evasion is a pervasive worldwide phenomenon.
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