Management of regional consumption

Abstract

Regions in the Slovak Republic are economically imbalanced, mainly in terms of employment and unemployment rates, in local budgets, in disposable incomes or consumption. The aim of this paper is to demonstrate a possible way to decrease disparity in consumption between regions using different individual income tax rates instead of the uniform, true flat tax rate of 19 percent only. To solve this problem, we have used the idea of van Hagen model (1998) to create an optimal tax rate for each region, by optimizing the variance of consumption. Having compared our results, we found out that varying tax rates for individual regions could be one of the internal sources for solving economic activity in these regions. Such an approach would provide possibility to decrease the existing regional disparities and to achieve balanced living standards in the different regions of Slovakia.

Keywords

• individual income tax rate
• consumption equalisation
• fiscal policy
• internal risk-sharing