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Baltic tax reform

Azacis, Helmuts and Gillman, Max 2008. Baltic tax reform. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the paper shows how a �at tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal �at tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, �at rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and closed economy cases. This shows benefits of moving towards the optimum.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Publisher: Cardiff University
Date of First Compliant Deposit: 30 March 2016
Last Modified: 04 Jun 2017 08:25
URI: http://orca-mwe.cf.ac.uk/id/eprint/77784

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