Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia

Gorodnichenko, Yuriy; Martinez-Vazquez, Jorge; & Peter, Klara Sabirianova. (2009). Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia. Journal of Political Economy, 117(3), 504-54.

Gorodnichenko, Yuriy; Martinez-Vazquez, Jorge; & Peter, Klara Sabirianova. (2009). Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia. Journal of Political Economy, 117(3), 504-54.

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We examine the effects of Russia’s 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998–2004. We associate large and significant changes in tax evasion following the flat tax reform with changes in voluntary compliance. We develop a consumption-based framework to assess the deadweight loss from income tax in the presence of tax evasion and show that the efficiency gains from the reform are at least 30 percent smaller than the gains implied by conventional approaches.


Population and Health Policies and Programs


JOUR



Gorodnichenko, Yuriy
Martinez-Vazquez, Jorge
Peter, Klara Sabirianova



2009


Journal of Political Economy

117

3

504-54










4662

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