The Flat Tax: An Option to improve Equity and E ¢ ciency? von

Preliminary version, do not quote without permission The introduction of a at tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth e¤ects are expected. Despite these advantages, a at rate tax is not very popular in most Western European countries. The most important objection against a at tax states that a at rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and e ¢ ciency e¤ects of at rate tax reforms. A at rate tax reform increases the inequality and reduces the polarisation of the distribution of disposable incomes. The higher the marginal tax rate and basic allowance the less inequality increases. The e¤ective marginal tax rates are decreasing for some taxpayers (especially with high incomes) and increasing for others. The labour supply estimation shows that revenue neutral at tax scenarios yield negative employment e¤ects, whereas scenarios which allow for a loss in tax revenue increase the labour supply