Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia / Yuriy Gorodnichenko, Jorge Martinez-Vazquez, Klara Sabirianova Peter.

Format:

Book

Author/Creator:

Gorodnichenko, Yuriy.

Contributor:

National Bureau of Economic Research.

Martinez-Vazquez, Jorge.

Sabirianova Peter, Klara.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13719.

NBER working paper series no. w13719

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Myth and Reality of Flat Tax Reform

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

Using micro-level data, we examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies. We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response. Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes. We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches.

Notes:

Print version record

January 2008.