Slovakia’s 2004 Tax and Welfare Reforms

This Working Paper should not be reported as representing the views of the IMF. The views expressed 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 elicit comments and to further debate. The paper reviews Slovakia’s comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection