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WP/06/218
The “Flat Tax(es)”: Principles andEvidence
Michael Keen, Yitae Kim, and  Ricardo Varsano
 
 
 
 
© 2006 International Monetary Fund WP/06/218
IMF Working Paper
Fiscal Affairs Department
The “Flat Tax(es)”: Principles and EvidencePrepared by Michael Keen, Yitae Kim, and Ricardo Varsano
1
 September 2006
Abstract
 
This Working Paper should not be reported as representing the views of the IMF.
The viewsexpressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicitcomments and to further debate.
 One of the most striking tax developments in recent years, and one that continues to attract considerableattention, is the adoption by several countries of a form of “flat tax.” Discussion of these quite radicalreforms has been marked, however, more by assertion and rhetoric than by analysis and evidence. This paper reviews experience with the flat tax, seeking to redress the balance. It stresses that the flat taxes that have been adopted differ fundamentally, and that empirical evidence on their effects is very limited. This precludes simple generalization, but several lessons emerge: there is no sign of Laffer-type behavioralresponses generating revenue increases from the tax cut elements of these reforms; their impact oncompliance is theoretically ambiguous, but there is evidence for Russia that compliance did improve; thedistributional effects of the flat taxes are not unambiguously regressive, and in some cases they may haveincreased progressivity, including through the impact on compliance; adoption of the flat tax has not resolvedcommon challenges in taxing capital income; and it may have strengthened, not weakened, the automaticstabilizers. Looking forward, the question is not so much whether more countries will adopt a flat tax aswhether those that have will move away from it.JEL Classification Numbers: H20, H30Keywords: Flat tax, tax reform, income tax
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We are grateful to Mark de Broeck, Bob Conrad, Isaias Coelho, Anna Ivanova, Alex Klemm, Tim Muzondo, and participants in several seminars for helpful comments and suggestions.
Author 
’
s E-Mail Address: mkeen@imf.org; ykim@imf.org; rvarsano@imf.org
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