The Income Tax Reform in Slovenia: Should the Flat Tax Have Prevailed?

Majcen, Boris and Verbic, Miroslav and Cok, Mitja (2007): The Income Tax Reform in Slovenia: Should the Flat Tax Have Prevailed?

Abstract

In 2007 Slovenia launched a comprehensive reform of its tax system. This article presents an analysis of several envisaged tax reform scenarios, including the flat tax proposal, with a dynamic general equilibrium model of the Slovenian economy, linked to a microsimulation model. We focus mainly on the macroeconomic and welfare aspects of the proposed scenarios, thus capturing the overall effect on individual taxpayers and the government budget. The main characteristics of the model are presented along with the results of different reform scenarios, including the one that finally passed the parliament and now forms part of Slovenia’s tax system. Our results suggest that options other than the flat tax system are better suited to the country’s long-term economic development.

• Item Type: MPRA Paper
• Language: English
• Keywords: flat tax; general equilibrium model; income inequality; macroeconomic effects; personal income tax; Slovenia; tax reform; welfare analysis
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models

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