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« Russ Roberts Making Sense on the Trouble with Economic Stimulus Policy Packages | Main | Back to the Basics »

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I understand the reasons why Dan Mitchell and many economists advocate a flat tax and praise the move towards flat taxes in Eastern Europe as putting pressure for fiscal reform in the West of Europe and elsewhere. I agree, on the other hand, with fiscal equality: it seems fair to me that everyone should pay an equal share for the public goods everyone benefits from. But things aren’t all that great with the “flat tax revolution” in Eastern Europe from a free market point of view. The flat tax systems introduced in Eastern Europe actually lead to higher government fiscal revenue – and this is usually the reason why they were adopted in the first placed – because of the reduction in bureaucratic costs and mismanagement, the Laffer effect and the instauration of fiscal control on a larger share of the underground economy. Consequently, higher government revenue allowed higher government spending on new welfare programs.

Well then that is a case for a lower flat tax rate, rather than an indictment of the flat tax itself.

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