5' Tax Reform in Practice

1
5. Tax Reform in Practice

• 5.1 Micro-Simulation of Tax Reform
• 5.2 Flat Tax Reform The Case of Germany
• 5.3 Literature

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Taxation Economics Short Account of Tenth Lecture

• Strict convexity of the relative concentration
  curve in terms of q (Theorem 2) this comes up to
  an elasticity expression of taxation as a
  function of q by way of the inverse distribution
  function. A graph illustrated.
• Strict convexity of the relative concentration
  curve in terms of p (Theorem 3) elasticity
  expression in terms of p by way of the inverse of
  the first moment distribution function minus the
  derivative of the inverse of the first moment
  distribution function. A graph illustrated.
• Discrete versions of these curves for empirical
  investigations.
• Definitions of greater tax progression.
• Equivalence between the shapes of relative
  concentration curves and curve differences.
• Problem of greater tax progression with nonconvex
  or nonconcave relative concentration curve.
• Statistics of international and intertemporal
  comparisons of tax progression.
• Comparisons of the respective graphs for six
  concepts of the comparison of tax progression
  between Germany and USA for the year 2000.

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Does money provide the decisive incentives? There
are other examples, for instance Diogenes. John
William Waterhouse (1849-1917), Diogenes, 1882,
Art Gallery of New South Wales, Sidney, Australia.
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5.1 Micro-Simulation of Tax Reform
Micro-simulation models use household data to
infer consequences of the tax-and-transfer system
and its changes. In particular, this concerns the
impact effects of tax and transfer incidence and
the change of the distribution of net incomes.
Micro-simulation models are based on the data set
of a sample of households. The evaluation of the
overall effects require an inference from the
sample data to the universe of households
according to the weights of the different
household types in the sample. We have two types
of micro-simulation models Static
micro-simulation models These models are based
on cross-section data, usually household income
and expenditure data. The data refer to one
particular time period of data collection.
Whenever they are used for later periods, the
data have to be adapted, e.g. to allow for
inflation, changes in the legal system which have
meanwhile occurred, changes in the composition of
the universe, etc. See Merz (1991), Harding
(1993, 1996), Gupta and Kapur (2000). These
models by and large analyze impact effects, i.e.,
they do not assume that the individuals react to
changes in the parameter values. One can
introduce behavioral functions, but the are more
related to the analysts imagination.
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Dynamic micro-simulation models These
micro-simulation models are based on panel data,
i.e., household data are continuously reported
for the same households for a sequence of periods
see ODonoghue (2001). Such data allow time
series analyses of the behavior of households.
They capture births, death, marriage, divorce,
disease. These models use probabilities
concerning demographic and socio-economic
processes and allow thus inferences about the
behavior of the universe. Missing or deficient
data sample data suffer from incomplete data
bases. There are household types which are not in
the sample e.g. in Germany people in old-age
nurseries soldiers, not all data of interest
are included in the questionnaire e.g. in
Germany entrepreneurial profits which are
withdrawn from the enterprise, some households
may refuse to supply some data, because of
ignorance, default, or mistrust, some households
may supply defective data. Hence, several
procedures were developed to deal with incomplete
data. 1) Methods to deal with missing data a)
Ignore missing data and exclude the households
for the respective analyses. Might cause biased
results. b) Exclude households with missing data.
Advisable if not too many units would be
excluded. c) Change the weights for the
households with the respective entries causes a
multitude of weights.
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2) Statistical methods of data completion. All
these methods take the missing or deficient data
from another data file. The data files have to be
similar to apply this technique. a) Completion by
the mean the missing data is completed by the
mean or median of the valid values. b) Apply
regression methods problem is the use of point
estimates for this method (neglect of data
dispersion). c) Hot deck techniques the missing
or deficient data are replaced by randomly drawn
data from the valid data. d) Doubling take a
similar household with complete data instead of
the household with deficient data. e) Use maximum
likelihood methods. f) Use Bayesian methods for
the estimation of missing data. 3) Deductive
methods of data completion Use logical methods
to make plausibility inferences.
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Micro-simulation models consist of many
equations. Many models are programmed in BASIC.
The user usually gets a screenshot with results
and possibilities to change certain parameters.
Then the results are shown. Usually, the user
cannot change the shape of the equations without
access to the model (which is in often not
disclosed to the user) There is a
micro-simulation model for Russia DARTS
Distributional Analysis of the Russian Tax and
Transfer System built by André Decoster
Louvain and Anthony Shorrocks for WIDER in
Helsinki. WIDER has also micro-simulation models
for several African countries online. This model
is available online from the WIDER homepage. SEE
CD! Micro-simulation models are particularly
valuable for the analysis of the effects of
taxation and social policy in a country. They can
inform about the distributional effects of
changes in tax regimes and social security
regimes i.e., who pays and who benefits?, and
they can inform on the revenue effects of tax and
social security reforms i.e., can the reform be
financed?. Recall that these are the impact
effects. Micro-simulation models cannot
objectively inform about the behavioral reactions
to the changed set of parameters of the tax
regime and the social security regime. All
respective assumptions are speculations which
result from the imagination of the analyst. They
are as good as the prophetical power of the
analyst.
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5.2 Flat Tax Reforms Comprehensive Tax and
Social Security Reform in Germany A Flat Tax
with a Social Component
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The most important practical tax reforms in many
countries are flat tax reforms. Flat taxes
according were adopted by Estonia in 1994 (26),
by Lithuania in 1994 (33), by Latvia in 1997
(25), by Russia in 2001 (13), by the Ukraine in
2003 (13), by Slovakia in 2004 (19), by Georgia
in 2005 (12), by Romania in 2005 (16), and by
Macedonia in 2007 (12). Serbia had introduced a
constant marginal tax rate on labor income, but
applies a kind of surtax on the sum of income
from all sources exceeding a certain limit. Keen
et al. (2006, 3, footnote 2, and 5, footnote 5)
report that Bolivia (13) and Paraguay (10)
introduced a flat tax, but mainly as an
instrument to improve the compliance of the value
added tax, and that Jersey and Guernsey (20) and
Jamaica (25) had introduced a flat tax. Hong
Kong SAR allows taxpayers the choice between a
16 flat tax (with a narrow range of deductions)
and a progressive tax schedule. Some subnational
governments, such as Illinois, Indiana,
Massachusetts, Michigan, and Alberta, also levy a
regional flat tax Pennsylvania has a
proportional flat tax. Recently three more
countries joined the flat tax community, viz.
Iceland (36), the Czech Republic (15), and
Albania (10). Interestingly enough, The
Washington Post reported on November 2, 2003,
that the U.S. Administrator of Iraq, L. Paul
Bremer, had imposed a flat tax on Iraq
(15). Most flat taxes are flat taxes with
personal allowances, i.e., taxation of income at
a flat tax starts only after a threshold
determined by the personal allowance. We will,
however mostly concentrate on true flat taxes,
i.e., truly proportional taxes.
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Advantages of True Flat Taxes
Optimality Luce (1959) and Young (1988) showed
that a logarithmic utility function of income is
a plausible hypothesis. Combining a logartihmic
utility function of income with the principle of
equal absolute sacrifice yields a proportional
tax schedule Young (1988). Deadweight loss of
impost Feldstein (1999), among others showed
that the deadweight loss of impost is in
proportion to the square of the marginal impost
rate. In other words when the marginal impost
rate increases from 30 to 45, then the excess
burden of impost does not increase by 50, but by
125! A proportional tax schedule with lump-sum
social security contributions minimizes the
deadweight loss of the tax and social security
system. Work incentives the marginal impost
rate affects work incentives. Given the average
tax burden, then work incentives are less
impaired the smaller is the marginal impost
rate. Tax arbitrage when all components of
income are taxed at a uniform proportional tax
rate, then all incentives for tax arbitrage are
eliminated.
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Elimination of the splitting boon in Germany the
income tax of a married couple is computed as the
application of the tax schedule to the mean
income and the tax is computed by doubling this
tax. For a progressive tax schedule with
nondecreasing marginal tax rates this means a
lower tax burden than the sum of the taxes on the
incomes of the individual spouses. This splitting
boon disappears under a proportional tax. Tax
compliance Hindriks, Keen and Muthoo (1999)
showed that a proportional tax with a tax rate
equal to the probability of a tax audit and a
fine amounting to the evaded income, multiplied
with the acceptance of the tax return without
audit, is evasion-proof, corruption-proof and
revenue maximizing. Administrative
simplification A proportional tax schedule is a
functional equation, i.e., the tax on the sum of
all income components equals the sum of the taxes
on all income components. This allows tax
collection by deductions at source without asking
the taxpayer for an additional tax return in most
cases. Taxation at source curbs tax evasion and
tax avoidance For the United States it was shown
that taxes which are withheld at source and
reported by third parties have a close to 100
tax compliance. Sources of income which are
neither withheld nor reported by third parties
have the lowest tax compliance. See Gale and
Holtzblatt (2002). Social security contributions
are collected as lump-sum payments.
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The Achilles Heel of a Flat Tax Reform Income
Distribution
Using micro-simulation models one easily finds
that a flat tax leads to a very unequal post-tax
income distribution for Germany see Fuest,
Peichl and Schaefer (2006), for Denmark see
Larsen (2006). In case of a true flat tax all
relative income inequality measures do not change
for pre-tax income and post-tax income. In case
of a flat tax with personal allowances the lower
income strata will win (as compared to a
graduated income tax) and the highest income
strata will win (because of the low rate of the
flat tax). If the switch to a flat tax should be
revenue neutral, then the middle income strata
will inevitably be higher burdened. But the
median voter is usually in the middle income
strata, and (s)he will oppose such reforms. This
explains why flat tax reform proposals have
hardly any chance in highly democratic countries
with established progressive income tax
schedules. They are not politically
sustainable. Hence, if we want to make use of the
advantages of flat taxes, we have to supplement
the tax régime by devices which work in the
direction of a more equal income distribution.
The integration of the social security framework
into the tax reform allows to reach such a goal.

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Germany The sick man of Europe?
14
Tax Base versus Tax Schedule

• German Finance Ministers such as Hans Eichel and
  Peer Steinbrück have argued in defence of high
  German tax rates in that the tax base in Germany
  is narrower than in other countries.
• However, what international investors understand
  and compare are national tax schedules rather
  than tax bases. Tax bases are more opaque and
  more likely to stealthy manipulations than the
  tax schedule. Just have a look at the changes
  of the German income-tax legislation in the
  period 1998-2006 see Bhatti (2006)!
• Moreover, the joint operation of taxation and
  social security contributions makes Germany a
  high-impost country, in particular as compared
  with the new EU member countries.

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Tax Burden on Profits of Joint Stock Companies in
the New EU Member States and in Germany
Source Jacobs et al., Company Taxation in the
New EU Member States, Frkf-Mannheim 2004
18
High cost of labor in Germany

• German workers and employees have since long been
  pampered by high gross wages/salaries.
• High standards of social security (high pensions,
  early retirement, high rates of social welfare,
  good health care) led to high social security
  contributions and high taxes.
• All that boosted labor costs in Germany and
  depressed net wages at the same time The ratio
  of labor cost and net wage is about 3!

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Structure of total cost of labor Labor cost per
full-employed worker/employee in productive
Sectors (Germany West)
Sonderzahlungen Urlaubs- und Weihnachtsgeld
Bonuszahlungen Beiträge zur Vermögensbildung Verg
ütung arbeitsfreier Tage bezahlter Urlaub
Lohnfortzahlung bei Krankheit Arbeitsentgelt für
Feiertage Arztbesuche während Arbeitszeit Aufwend
ungen für Vorsorgeeinrichtungen
Arbeitgeberbeiträge zur Kranken-, Pflege-,
Arbeitslosen-, Unfall- und Rentenversicherung
Aufw. für betr. Altersversorgung und für sonstige
Vorsorgeeinrichtungen des Arbeitgebers Sonstige
Nebenkosten Abfindungen Kurzarbeitergeld
Familienunterstützungen etc.
First 6 lines in percentages last line in .
Trade ist similar to workers Germany East labor
costs lower by some 40.
Source Arbeitskostenerhebung 2000 des
Statistischen Bundesamtes
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Consequences Firms move to low-wage and low-tax
countries and jobs in Germany vanish

• Therefore, high unemployment in Germany,
  concentrated among low-skilled labor force.
• Older workers are less productive (electronics)
  and are more expensive, due to seniority wage
  scales. Hence, they are laid off and take early
  retirement.
• This means heavy federal subsidies for old age
  pensions PAYG-system in Germany.
• Moreover, there are high public expenses for
  social welfare, due to high benefit rates and
  large numbers of needy people.

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Federal subsidy for old age pensions in Germany
23
Social welfare Arbeitslosengeld II (incl.
lodging subsidy in W/E children 7-14 y.)
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These high social welfare payments can be
afforded only in conjunction with extremely high
marginal withdrawal rates as own labor income is
earned. They amount to 85 and more an can even
reach 100 for some income intervals. Hence, it
does not pay to work for the recipients of social
welfare as hardly anything is left from their own
labor income. Thus, whereas countries like the
United States and Great Britain (since
Mrs.Thatcher) have the working poor among the
low qualified workforce, Germany has the
nonworking poor. The difference is that the
working poor care for themselves, whereas the
maintenance costs of the nonworking poor boost
public expenses and, consequently, the taxes and
the social security contributions. Moreover, the
ratchet effect on wages exerted by the high
social welfare payments attracts immigration of
low qualified labor force. For them, the social
welfare payments are considered as a rather good
salary as compared to what they can earn at home.
As the domestic low qualified labor force refuses
to work for wages even somewhat higher than the
level of social welfare payments, low qualified
immigrants (who have not yet acquired a claim to
social welfare) are attracted by this wage level
which the consider as very attractive. Hence,
Germany attracts low qualified immigrants, who
may later on, when they have acquired claims to
social welfare, augment the army of the
nonworking poor. Owing to these circumstances,
Germany has high unemployment rates among the low
qualified labor force. Moreover, their
maintenance incurs heavy cost.
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Taxation Economics Short Account of Eleventh
Lecture

• Micro-simulation models static versus dynamic
  models
• Missing or deficient data
• Flat tax reforms in various countries
• Advantages of flat taxes
• Problem of flat taxes unequal income
  distribution
• Tax and cost situation in Germany
• Labor cost and tax burden
• Subsidy for old age pensions in Germany
• Level of social welfare
• Immigration of unskilled workers to Germany

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Past Reforms of the German Income Tax Schedule A
Case for Window-Dressing

• German Finance Minister Peer Steinbrück told
  members of the Frankfurt Chamber of Commerce in
  January 2006 that the German income tax rates are
  at a historical low.
• A look at the development of lowering the German
  income tax schedule shows that the cognitively
  spectacular parameters (minimum and maximum tax
  rates) have been lowered without impairing the
  area under the marginal income tax schedule (
  tax revenue) too much.
• Moreover, lowering the tax schedule has been
  partly counterbalanced by broadening the tax
  base, primarily for higher incomes and irregular
  incomes see Bhatti (2006).
• This means that the lower income strata have
  gained more from lowering the tax schedule than
  they lost from broadening the tax base.

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Der bundesdeutsche Marginalsteuertarif Reform
Dezember 2003
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The Dilemma of Tax Reforms

• Because of economic facts, the average burden of
  taxation and social security contributions cannot
  be much reduced.
• As the deadweight loss of impost is governed by
  the marginal impost rate, all that can be done to
  eliminate distortions is to reduce marginal tax
  rates and marginal social security contributions
  and to broaden their base in order to prevent the
  revenues from falling. Also lump-sum payments may
  well fit in.
• Now, given the history of German income tax
  reforms, all reform proposals focusing on income
  tax reform only cannot circumvent broadening the
  tax base for lower income strata relatively more
  than for higher income strata (simply because
  possibilities of broadening the tax base for the
  high income strata have partly been exhausted,
  partly to prevent inducing them to leave the
  country).
• This means that all proposals for income tax
  reform imply that scale invariant measures of
  income inequality (e.g., Gini, Theil, Atkinson)
  increase.
• As to absolute tax reductions, either many
  taxpayers gain then the reform cannot be
  financed CDU, FDP, Kirchhof, or many lose
  then the reform cannot attract a majority of the
  electorate SVR II.

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Source Bach and Steiner 2006
Change in income tax revenue in billions of EURO
Change in income tax revenue per head
30
Source Bach and Steiner 2006
31
Source Bach and Steiner 2006
Winners
Loosers
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Reform of Social Security

• Recall that Germany has peak rates of social
  security contributions. They cannot be further
  increased.
• Reduction of social security benefits were
  either effectuated or are on their way
  stagnation of pensions reduction of medical
  services reduction of unemployment doles
• Many proposals suggest to incorporate incomes
  beyond employee incomes. This increases excess
  burden of social security contributions.
  Moreover, it would also increase the number of
  persons entitled to benefits (increases
  expenses).
• Other proposals fail to collect the required
  revenue and propose to increase taxes instead.

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A perfect régime for Germany a flat tax with a
social component.
34
An Escape A Flat Tax with a Social Component

• All sources of domestic income B are taxed at a
  porportional rate of ? (tax for most incomes
  deducted at source).
• Social component S consists of (1) subsistence
  level E 700 for first adult 350 for other
  adults 300 for a child (2) social security
  contributions (3) investment in human capital
  fees for kindergarten, school, university.
• Social compensation The excess of S over the
  rate ? of worldwide income B is subsidized by
  public funds max0, (S-A-?B. Aalimony
• Thus the reform proposal is driven by two
  parameters the proportional tax rate, ?, and the
  proportion of income considered to be shouldered
  by a household, ?.

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The computation of net income
where N....net income Bgross domestic
income S.social component Esubsistence
level A.alimony B..gross worldwide
income TAforeign taxes ?..tax
rate ?proportion of worldwide income to
be shouldered by the household
Note that most East-European countries have
introduced some variety of proportional taxation.
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Other parts of the reform concept

• The employers share of social security
  contributions is paid out along with the
  wage/salary and is subject to tax.
• All social security contributions (except
  unemployment insurance) are done by lump sum
  contributions
• Old age pensions the mandatory part is 600 per
  month and household switch to a funded system
  with individual (and portable) capital accounts
  3,124 Billions 5 for replacement and 3
  interest yield 250 Billions per year this is
  the running sum for pensions inclusive of federal
  subsidies, which are no longer needed for a
  funded system.
• Health insurance Lump sum contribution of 190.80
  per adult and 78.44 per child and month.
• Nursing insurance Lump sum contribution 25 per
  adult and month.
• Unemployment insurance remains as it is.
• Many other measures will prove to become
  necessary to prevent misuse of the system.
  (People who want to draw on the advantages of the
  system without having participated in its
  financing. In other words, the benefit principle
  should be observed as far as possible.)

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Two varieties of the Social Component N

• Social Component A all wages are negotiated as
  hourly wages for real work only. Wages are
  increased by another 40 (68 in total), but the
  worker/employee carries all cost of social fringe
  benefits. Social fringe benefits did not go at
  the expense of profits, but at the expense of
  wage/salary increases.
• Social Component E Investments in human capital
  are not borne by the people, but are covered by
  public funds. This means higher taxes and higher
  incomes of the well-to-do, but can more easily be
  compared with the status quo. Our model
  calculations are carried out only for Social
  Component E.
• The reform concept should also abolish business
  tax and corporation tax.

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Check of Financing the Reform

• We start from the data of the German Income and
  Expenditure Survey 1998 (EVS 98).
• The data are updated to 2005 and processed in
  micro-simulation m. KiTs.
• The data are transformed from EVS to the items
  used by the reform concept See Seidl (2006).
• For the social component E, the social
  compensation is max0,(Esoc.sec.contr.-?B).
  Assuming that BB and TA0, we have
• N(1-?)B-(soc.sec.contr.)max0,(Esoc.sec.contr.-
  A-?B)A
• The minimum pensions are fully taxed only 17 of
  excess pensions are liable to tax (because they
  result from contributions out of taxed income).
• Calculations show that we need the parameter
  values ?0.3 and ?0.35.
• The next table shows in its upper part that
  aggregate net income (disposable income) is
  higher under the reform concept. This is largely
  due to alimonies received which are considered as
  incomes under the reform concept.
• In its lower part, this table assumes, first,
  that income tax revenue and social security
  contributions are used to finance social expenses
  (data taken from the social security statistics
  in the table after the next). This gives a
  deficit for the status quo. Using also the
  revenues of business tax and corporation tax to
  cover the deficit leads to a surplus just a bit
  smaller than the surplus of the reform concept.
  However, the reform concept as it renounces
  business and corporation taxes leaves 46.5
  Billions in the private sector.

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Collected equally from all income strata
Benefits the low income strata Hence,
substantial income transfers to low income strata.
a Inclusive of transfer income, distributed
profits, exclusive non-distributed profits for
reform inclusive of employers share of social
security contributions and inclusive of alimonies
and gifts received. b For status quo exclusive
of employers share of social security
contributions and inclusive of premiums for
private health insurance.
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a Old age pension can be reduced by some 25
because of social compensation of reform concept.
b Inclusive of expenditure of private health
insurance companies. c Unemployment benefit and
related expenses no unemployment help. d Not all
rehabilitation expenses for disabled persons
might be covered by the reform concept.
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Distributional Effects of the Reform

• In the following tables, households are arranged
  according to income intervals, for Germany as a
  whole and for three types of households singles
  with 2 or more children married couples with 2
  children, both spouses working married couples
  without children, both spouses working.
• We observe that incomes are accumulated among the
  middle income strata, reflecting widespread
  progressive transfers. There are also transfers
  in the direction of households with children.
• Income inequality is measured according to the
  Theil coefficient and the Gini coefficient. These
  measures decrease for all income intervals The
  Theil coefficient diminishes partly by up to one
  half, the Gini coefficient by up to one third
  Table 8.
• Households where both spouses work lose under the
  reform concept. This reflects their higher
  income. Age cohorts between 45 and 64 lose, the
  age cohorts 45-54 because of their higher
  incomes, the age cohorts 55-64 also because
  children have already left the household. Age
  cohorts 65 and older gain because of low pension
  incomes.

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Income strata with more aggregate income under
reform concept.
Income strata with less aggregate income under
reform concept.
Germany Intervals of disposable household income
43
Income strata with more aggregate income under
reform concept.
Income strata with less aggregate income under
reform concept.
Single with 2 or more children
44
Income strata with more aggregate income under
reform concept.
Income strata with less aggregate income under
reform concept.
Married couple with 2 children (both spouses
working husband 70 of household income wife
30)
45
Income strata with more aggregate income under
reform concept.
Income strata with less aggregate income under
reform concept.
Married couple without children (both spouses
working husband 70 of household income wife
30)
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Absolute and Relative Tax Burden for Various
Household Types

• We check the absolute and relative tax burden for
  four household types singles with 2 children
  married couple, both working, with 2 children
  married couple, both working, without children
  old-age pensioner couple.
• No one is more burdened under the reform concept.
• Moreover, we show how the two parameters govern
  the tax-cum-transfer system higher ? shifts the
  net income curve down and the curve of average
  burden up higher ? makes the tax-cum-transfer
  system more progressive for the lower and middle
  income strata.

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Single with two children
50
Married couple (both spouses working 70/30)
with 2 children
51
Married couple (both spouses working 70/30)
without children
52
Old-age pensioner couple (70/30)
53
The difference between the reform concept and the
Friedman Tax.
Reform concept
Friedman Tax
Impost
According to the Friedman Tax all even the
richest taxpayers profit from the personal
allowance (analogous to the social component).
According to the reform concept the social
component fades out as pre-tax income increases.
This is bought at the price of higher marginal
impost-and-withdrawal rates for the lower income
strata. But after this initial hardship is later
on rewarded by very low marginal impost rates.
S
Pre-tax income
S
54
Conclusion

• The flat tax and the lump sum payments for social
  security contributions partly reduce, partly
  eliminate the excess burden of impost.
• The marginal tax rates decrease (as compared to
  the status quo) for incomes above average. The
  marginal impost-cum-transfer-withdrawal burden
  decreases for low-income earners from 85 and
  more to 65.
• The social component provides relief for
  low-income strata. Moreover, it shifts impost
  progression from the income-generation side to
  income-spending side. This should increase GDP
  rather than divide a smaller GDP equitably.
• Income distributions become, in spite of that,
  more equal (with the exception of top incomes).
• The business and corporation taxes are dispensed
  with under the reform concept, leaving some 46.5
  billions more for the private sector.
• Households with children gain under the reform
  concept, in particular singles with children and
  non-married single-earner couples with children.
• The splitting benefit of married couples
  disappears. The small marriage tax due to a
  relative decrease in the subsistence level of
  couples is counterbalanced by relatively less
  contributions for pensions.
• Extra tax benefits are eliminated.
• Upper income strata have to shoulder their care
  for subsistence, for social security, and for
  human capital investment for their children. In
  return for that, they are compensated with lower
  taxes.

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Taxation Economics Short Account of Twelvth
Lecture

• Window-dressing with German income tax reforms
• Dilemma of tax reforms average tax burden cannot
  be reduced hence, to avoid excess burden,
  broaden the tax base and reduce marginal tax
  rates
• Financial consequences of tax reform in Germany
  either too expensive or no democratic support
• Reform concept for Germany flat tax with a
  social component (social compensation) public
  subsidies for necessary expenditure which the
  individual cannot afford
• Checks of financing the reform proposal
• More equal post-tax income distribution, less tax
  burden

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Exam Taxation Economics

• Date of exam December 9th, 215 p.m., SR 506
• Time 1 hour 20 minutes for reading problems
• Registration Oct. 26th to Nov. 22nd
  klausuronline
• Evaluation 100 points maximum, at least 40
  points to pass grade transform in exam office
• Repetition only for students who did not pass
  the first time and got at least 20 points
  problems will consider that there was more time
  for learning
• Date of repetition February 12th, 1200-200
  p.m., SR 506 Registration Dec. 30th to Jan.
  27th klausuronline
• Erasmus students who need more than 6 ECTS?

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5.3 Literature
Bhatti B. 2006, Änderungen des deutschen
Einkommensteuergesetzes in den Jahren 1998 bis
2006, in C. Seidl and J. Jickeli (eds.),
265-278. Davies J.B. and Hoy, M. 2002, Flat Rate
Taxes and Inequality Measurement, Journal of
Public Economics, 84, 33-46. Feldstein M. 1999,
Tax Avoidance and the Deadweight Loss of the
Income Tax, The Review of Economics and
Statistics, 81, 674-680. Fuest C., Peichl A. and
Schaefer T. 2006, Die Flat Tax Wer gewinnt? Wer
verliert? Eine empirische Analyse für
Deutschland, Cologne, Finanzwissenschaftliche
Diskussionsbeiträge No. 06-6, Finanzwissenschaftli
ches Forschungsinstitut. Gaddy, C.G. and Gale
W.G. 2005, Demythologizing the Russian Flat
Tax, Tax Notes International, March 14, 2005,
983-988. Gale W.G and Holtzblatt J. 2002, The
Role of Administrative Factors in Tax Reform
Simplicity, Compliance, and Administration, in
G.R. Zodrow and P. Mieszkowski (eds.), Unites
States Tax Reform in the 21st Century, Cambridge,
Cambridge University Press, 179-214.
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Gupta A. and Kapur V. (eds.) 2000,
Microsimulation in Government Policy and
Forecasting, Amsterdam, North Holland. Hall R.E.
and Rabushka A. 1995, The Flat Tax, 2nd edition,
Stanford, Hoover Institution Press. Harding A.
1993, Lifetime Income Distribution and
Redistribution Applications of a Microsimulation
Model, Amsterdam and New York, North
Holland. Harding A. (ed.) 1996, Microsimulation
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1999, Corruption, Extortion and Evasion,
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Ivanova A., Keen M. and Klemm A. 2005, The
Russian Flat Tax Reform, Washington DC, IMF
Working Paper 05/16. Keen M., Kim Y.T. and
Varsano R. 2008, The Flat Tax(es) Principles
and Evidence, International Tax and Public
Finance 15, 712-751. Larsen T. 2006, A Flat Tax
in Denmark?, IB Revija, 30, 111-117. Luce R.D.
1959, On the Possible Psychophysical Laws, The
Psychological Review 66, 81-95. Merz J. 1991,
Microsimulation A Survey of Principles,
Developments and Applications, International
Journal of Forecasting 7, 77-104.
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O'Donoghue C. (ed.) 2001, Special Issue on
Dynamic Microsimulation Modelling, Brazilian
Electronic Journal of Economics 4/2. Seidl C.
2006, Eine umfassende Steuer- und Abgabenreform
in Deutschland Eine flat tax mit
Sozialkomponente, in C. Seidl and J.Jickeli
(eds.), 177-220. Seidl C. Drabinski T. and Bhatti
B. 2006, Umfassende Steuer- und Abgaben- reform
für Deutschland Ergebnisse der Mikrosimulation
für die Sozialkomponente E, in C. Seidl and J.
Jickeli (eds.) , 221-252. Seidl C. and Jickeli J.
(eds.) 2006, Steuern und Soziale Sicherung in
Deutsch- land. Reformvorschläge und deren
finanzielle Auswirkungen, Heidelberg,
Physica-Verlag. Seidl, C. 2007, A Flat Tax
with a Social Component, ????????
WP7/2007/05, ????? WP7, ??????, ?? ???. Young
H.P. 1988, Distributive Justice in Taxation,
Journal of Economic Theory 44, 321-335.
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