The Flat Taxation and Economic Development. A Panel Data Analysis of EU Countries

Abstract

The dilemma of the application and the implications of the types of taxation and the comparison between progressive versus flat tax systems has become a topic of great interest both in academic environment and at the level of the decision-makers. There are numerous debates regarding the application/replacement of one system with the other. Through this research, we intend to analyse a part of the implications of the flat tax system, namely its effects on the economic growth felt at the level of citizens in the case of the EU Member States that apply such a tax system. Thus, the study is focused on the impact of direct and indirect taxes on the growth of GDP per capita in the eight EU countries that applied the flat taxation for the period 2003-2018 explained by econometric models that use panel data built using the Stata software. The tax elements used were the revenues recorded from direct taxes: personal income tax, corporate income tax and social security contributions from both employees and employers and value added tax. In this respect, our expectations are that our results will reflect results similar to the latest findings in the specialized literature, and these models reflect a positive direct relationship between the GDP per capita and the independent variables. However, we consider that we could obtain a negative relationship between personal income tax and the GDP per capita, having in view that most of the results obtained in the past studies have shown this (with some recent exceptions).

Keywords

• flat taxation
• tax systems
• economic development
• panel data