The long-term economic impact of the flat tax in Poland. CGE simulation under alternative assumptions
Streszczenie
The purpose of this paper is to assess the long-term macroeconomic effects of introducing the
flat personal income tax at the level of 18% in Poland. We perform the simulation on a static
CGE (computable general equilibrium) model which helps track the reaction of the economy on
the impulse arising from the change in the tax regime. We assume that the gap in government
revenues arising from the flat tax introduction will be fully matched by cuts in government
consumption. The literature suggests that the flat tax reform is likely to stimulate labor supply and
capital expansion. The actual macroeconomic outcome largely depends on adjustment mechanisms
at work – especially the driving force of investment. If the increased household savings were to
be fully transformed into investment, GDP gain of 0.7−0.9% is observed, otherwise this effect is
dampened to 0–0.2%. The tax regime change in the analyzed form will deepen inequality and is
likely to reduce welfare of some (particularly low-income) households.
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