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The Economic Effects of A Flat Tax
Effects on Government Revenues
Effects on Government Revenues
Our model differs from Treasury Department findings that a 17 percent flat tax would reduce government revenues. We find instead that it results in an annual increase in government revenues of 1.8 percent. The difference probably can be accounted for by the fact that our model allows for behavioral changes resulting from changes in incentives and accounts for effects throughout the economy. It finds that the increase in government revenues is driven by the increases in the majority of sectors in the economy and accompanying increases in employment of labor, capital and land which, in our experience in CGE modeling, are relatively large.
Sensitivity Analysis
Sensitivity Analysis
As with any simulation exercise, our results must be regarded with some caution. However, sensitivity tests indicate that our results are robust. This in turn suggests that many of the fears expressed about a flat tax are unwarranted.