A Proposal for a Simple Average-Based Progressive Taxation System

A proposal for a simple average-based progressive taxation system

DIRK-HINNERK FISCHER, Ph.D.* SIMONA FERRARO, Ph.D.*

Preliminary communication** JEL: H21, H24 https://doi.org/10.3326/pse.43.2.2

* We would like to thank the participants of the FairTax special session of the conference “Enterprise and Competitive Environment 2017” for their comments on a draft of this paper. We would also like to thank Ton Notermans of Tallinn University of Technology for his advice on the paper as well as the two anonymous referees. ** Received: January 9, 2019 Accepted: April 1, 2019

Dirk-Hinnerk FISCHER Tallinn University of Technology, Akadeemia tee 3, 12611 Tallinn, Estonia e-mail: [email protected] ORCiD: 0000-0002-1040-8347

Simona FERRARO Tallinn University of Technology, Akadeemia tee 3, 12611 Tallinn, Estonia e-mail: [email protected] ORCiD: 0000-0001-5175-5348 - tion systems. In the existing literature on taxation, such a system is still missing tion systems. In the existing literature important gap. and this paper tries to shed light on this This article is a first theoretical introduction to the concept. The first demonstra- quantitative simple A examples. simplified by provided is concept SPT the of tion systems of taxation with those of the current the SPT of the results of comparison approaches different The two countries have very Germany and Estonia is offered. Estonia system and complex and progressive with its Germany towards taxation: with its flat tax system. For this first introduction, we limit our analysis to these is to show the goal The understandable. the paper in order to keep two countries The sys- taxation systems. different for two diametrically of the SPT differences tem proposed aims to combine the beneficial parts from both systems in order to facilitate the creation of a potentially simple progressive taxation system. works and emphasizes the dif- as claimed part shows The empirical that the SPT the SPT It also shows that in place. are currently to the systems that ferences 1 INTRODUCTION admin- in increase significant a to lead only not do systems taxation Complicated istrative costs for all parties involved, but they can also lead progres- paper introduces a concept for a simple This to exemptions and loopholes. unjustified tax to save the economy and the state system, which enables citizens, sive taxation the administering in invested time the decreasing by money of amounts significant sim- and also a fast and fast tax reporting facilitates The concept process. taxation The sim- stakeholders. and money for all ple auditing process, which saves time transparency for anyone and creates calculable makes it of the system plicity and rate tax of the optimization the to extends simplicity The system. the within power to change one of the fac- political progression, if it is in the interest of the most closes formulas and simple two only employs concept The proposed tors. (SPT) tax progressive simple The with this simplicity. code tax the in loopholes process same the have they and citizens all for process transparent a hence enables tax. flat the to counterpart progressive a is It differentiation. without through go to conflicts current the of several obviates SPT the concept, flat-tax the to contrast In taxa of progressive and some of the usual dilemmas inequality income regarding Abstract taxation sys- ofThis apaper simpleis presentation progressive a first theoretical that formula easily calculable adaptations of one is based on two tem. The system system contrib- The year. previous the of average income societal the is based on that tax progressive a is It approach. novel a is it discussions as academic to utes continuously increases anyone as against does not discriminate the progression income. The additional not go beyond the in tax payment does and the increase advantage of the system is its simple, shows analysis in the paper the core that mechanism. and adaptable transparent tax, taxation efficiency progressive taxation, flat tax, Keywords:

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143 43 (2) 141-165 (2019) - - 1651, Hobbes (2006) argued (2006) argued 1651, Hobbes The Wealth of Nations (1776), muddled his stance The Wealth also as a means to alleviate poverty. Milton Friedman hence relaunched poverty. also as a means to alleviate 1 - redis to solely taxation for graduated justification any see to liberal, a as hard, it find “I wrote: Friedman the idea of competition between proportional and progressive taxation (Friedman, taxation progressive and proportional between competition of idea the progressive that idea the against arguments 1962). Hayek (1960) also developed taxation is essential to ensure a redistribution of income in favour of the poor. 1 on progressive taxation. He claims: “It is not very unreasonable that the rich the that unreasonable very is not “It claims: He taxation. on progressive but revenue, to their expense not only in proportion public to the should contribute he endorsed proportional rates, suggest- something more than in proportion”, but towards the support of the ought to contribute state of every ing that “subjects is that abilities, respective as possible in proportion to their as nearly government, of protection the under enjoy respectively they which revenue the to proportion in for proportional argument Smith’s In fact, p. 911). V.II.I. 1776, (Smith, state” the Adam Smith, in his iconic work his recalling work (1852), Mill’s John Stuart to refer often supporters Flat-tax Mill robbery”. However, form of mild were “a progressive taxes that observation exemption to allow for necessities. Selig- endorsed digressive taxation, with an Mill’s vitiated proportionality from true deviation this that (1894) believed man entire case for flat rate taxes, opening the door mid-twen the to in roots its has tax flat of concept the of introduction The anystructure. sort of progressive rate that individuals should be taxed in proportion to the benefits they received from For or property. and not by income by consumption which is measured the state, tax as a use of consumption and the taxation proportionate between the link him, is common among those who support the relation base is not necessary even if that single-rate taxation. discussion on taxation. ity seems more consistent with his broader the from renaissance intellectual conservative the of product a as century tieth USA. In 1962, Friedman discussed progressive taxation. He preferred a flat-rate income tax 2 FLAT AND PROGRESSIVE TAXATION: A BRIEF OVERVIEW OVERVIEW BRIEF A TAXATION: AND PROGRESSIVE 2 FLAT Going briefly back into it history, becomes obvious that taxation depends highly in that illustrates and fairness. Frank (1995) of justice perception on the individual medieval times a system close to the modern flat-tax approach was already introduced, for in feudal Europe taxation consisted of the land owners taking a fixed In Leviathan, production. of agricultural proportion provides a slow and long-lasting progression, which might create a system that a system create might which progression, and long-lasting a slow provides uses the Luxembourg study The proportionally. over any taxpayer not affect does Income Study Database and the German statistical office data. The remainder of behind tax- theories 2 discusses different as follows: section is organised the paper section 3 describes the SPT, the rationale behind in order to explain ation systems section 5 provides some the dataset while section 4 discusses in theory and the SPT firstempirical example cases. Section 6 discusses the potential outcomes from the the paper. model while section 7 concludes application of the theoretical tribute income” (Capital and Freedom). Estonia replaced a Estonia replaced a 2 FLAT TAXATION FLAT Russia in 2001, Serbia in 2003, Slovak Republic and Ukraine in 2004, Romania and Georgia in 2005. Georgia Russia in 2001, Serbia in 2003, Slovak Republic and Ukraine in 2004, Romania and progressive personal income tax-rate system (16, 24 and 33, and 50 per cent) system (16, 24 and 33, and 50 per cent) progressive personal income tax-rate 1994, gradually reduced to 20 per cent by with a proportional 26 per cent rate in and Customs Tax Estonian 2011; 2015 and still standing at 20 per cent (Trasberg, Board, 2019). tax rates. In most and corporate income different Some countries have maintained cases flat tax refers only to income tax. The political and economicEastern debates in Europe have been dominated by discussions about Aligica, 2008). flattwenty years (Evans and tax for almost 2 2.1 Hayek and Friedman advocated a flat tax (Friedman, 1962; Hayek, 1956, 1960). The original starting point for flat taxes was Hall and Rabushka’s book (1983). The flat tax system grew in Europe in the years after the collapse of the Soviet to post-communist countries that Union and the European Union enlargement have adopted such systems. Hall and Rabushka (1983) are the pioneers in academic works about flat tax and income and corporate to both personal applied rate tax consider a single they coun- the of none practice in but allowance”, or “basic threshold given a beyond tries mentioned above have adopted a pure flat tax system. The concept of a flat a debate and it has created than in Europe tax is much more discussed in the USA European discussion took The sphere. the political in and academic in the both tax income flat-rate a enacted Estonia when Sea, Baltic the of shores the on shape have countries (CEE) European and Eastern Central 2001, other in 1994. Since 2006). Varsano, Kim and followed the Estonian example (Keen, introduction of the flat tax has developed In post-communist CEE countries, the since 1994, when Estonia was the first European country to introduce it. In the have followed its example. countries meantime, other CEE One particularly interesting approach for finding a just income taxation system, the on based is It approach. average hourly is the (2015), Bamford by developed a is which indicator, lifetime-worktime the is first The figures. key two of average the is second The life. person’s a over accumulated working hours of all bundle lifetime over the earned income for all indicator is the which income, lifetime then is The outcome and averaged. numbers get accumulated These already lived. tax particular basis for the be the can This average hourly income. an average income average with a higher would increase the burden concept, burden. In the but it respects system may not be very practical, The 2015). per hour (Bamford, does not take system taxation “normal” per hour which the of earning aspect the taxation few average-income-based this is one of the Additionally, account. into systems in existence.

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145 43 (2) 141-165 (2019) - - - - - Nowadays, Nowadays, the European countries that have adopted the flat-tax system are all flat- the of idea core The Islands). Channel the (except nations Communist former or for rate regardless of income pays the same tax is that everybody tax concept Only a few empirical studies have considered previous flat-tax reforms in detail. The most attention has been paid to the Russian flat-tax reform of 2001 (Gorod- They used the Difference-in-Dif 2008). and Peter, Martinez-Vazquez nichenko, income-tax microdata and household sur Fuest, Peichl and Schaefer (2008), using The introduction of flat-rate tax systems is associated with a possible employmentefficiency, and boost growth through in simplification and better incentives, and Kim Keen, inequality. in increase an with associated is it time same the at but fac- and impact on the effects evidence the empirical (2006) stressed that Varsano tors of the flat tax is limited to several countries that have adoptedmeans responses, which behavioural Laffer-type sign of found no they but years, it in recent Paulus and Peichl (2009) studied increases. revenue cuts would generate tax that Westernthe Europeancountriespossibility of usingapplying simula- a flat tax in tion and the EUROMOD dataset, given that flat taxes have not yet been imple tune. This pure form of proportional taxation is obviously not the only possible not the only possible is obviously of proportional taxation This pure form tune. over the years. has been developed design that ferences approach to study the effects of flat-rateRussia’s income-tax reform on consumption, income and tax Their evasion. findings show that the adoption of a revenues, tax in increases significant to lead to expected not is tax income flat-rate and although they find tangible efficiency gains from the tax reform, they are not Reynolds (1999) discusses how approaches. by conventional as implied as large World Second the after century a half than more for tax flat a had has Kong Hong 2008), but Hong Peichl and Schaefer, similar to the Channel Islands (Fuest, War, like nations or autonomous not independent Islands are Channel Kong and the Estonia, the first European country to introduce a flat rate of 26 per cent on per 1994. sonal income and corporate profits in shows study Their Germany. in feasible be would tax flat a whether asked data, vey that a flat-rate tax with a low tax rate anda low basic allowance yields 1.8 per cent of income-tax rev- amounting to approximately static welfare effects positive at the same time. In their model, theenue, but it increases income inequality by combining a higher tax rate with aincrease in income inequality can be avoided Their conclu- the efficiency gains vanish. higher basic allowance, and in that case, distributional problematic the and effects efficiency limited their to due that is sion countries. Western European spill over to impact, flat-tax reforms are unlikely to in most that they claim paper, In their countries. European Western in mented countries the relative loss in disposable income is high or even highest for middle- process in political groups for the these of importance households. If the income Europe is Western taken into account and correlated with the effects of a flat tax European countries are not Western system, it might be possible to explain why keen on introducing a flat tax. - , 2006). PROGRESSIVE TAXATION PROGRESSIVE TAXATION 2.2 The impact of every progressive system depends hugely on its particular design. in which authors call for a taxation There are rather extreme cases of progressivity, in which the highest incomes within a society should be taxed with increasing mar ginal rates, while low incomes should receive tax subsidies (Diamond and Saez, but this is not a necessary condition for a progressive taxation system. 2011), poor a chance of giving the Support for a progressive system comes from the idea by the is given Another argument 2015). (Schweiger, situation their to alleviate No implemented flat-tax system meets all theadditional requirements needed for an “orthodox” flat tax (asproposed by Hall and Rabushka, 1983), namelyno tax earnings, foreign on tax pensions), no (including on savings be no tax there that and allowances no charities, on tax no inheritances, on tax no gains, capital on not on profits (Murphy on cash flow and business be taxed reliefs, while One argument important for the advocates of a flat tax is that it broadening the tax base and by lowering tax evasion, improve tax collection would help to in their (2006) show Varsano and the budget revenues. Keen, Kim increasing in dropped tax, as share of GDP, from the personal income paper that the revenues Estonia in the first year after theintroduction of a flat tax. In terms of fiscal pres- sure for low-income earners, Staehr (2004) mentions that the flat tax might be a fragmentation and unemployment. factor leading to societal a flatTurning tax into a progressive tax by adding tax-free thresholds would be the works without is that the SPT The difference proposed here. closest to the concept by receivers equally, it is transparent and treats all income stages, barriers or limits, is also based on the The SPT individual. applying the same two formulas to each dis- income the to rate tax individual the relates hence and income average societal There are no levels that might prevent employees from aim- tribution in the society. There is more taxes than income gained. ing to gain more, by requiring them to pay to this. Each euro of additional incomealso no mid-income trap or any issue similar taxation system never eliminates the gainis taxed more than the last one, but the entirely. Every income is beneficial to the individual gaining it, regardless if of the income distribution. person is in the lowest or the highest quantile the time the and costs administrative the that is tax flat a of advantage undeniable The This is also one of the core strengths required are rather low for all parties involved. is built on. that the SPT might be is that simplicity hypothesis that we would like to test in another paper A which might be of particular among the population, able to promote legitimacy would provide such an The SPT like these. interest for governments in times advantage for the government, but further research would be required to find out if such a hypothesis can hold up.

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147 43 (2) 141-165 (2019) - man taxation systems. In his paper, he wrote that the taxpayer has to pay, just pay, has to he wrote that the taxpayer man taxation systems. In his paper, and situation financial individual the of because so do to able is he or she because circumvention or accepted provided legally use the she or he did not not because it should be a or strategy; of tactics should not be a matter Taxation mechanisms. of cat game the not cards and open with card game a visor, open an process with forward leap a big made also Kirchhof system. current by the triggered mouse and The concept planned to reduce the more than 30 Entwurf”. with the “Heidelberger German taxes to four taxes: one income tax, one sales tax, one estate, inheritance and gift tax and one excise tax (Kirchhof, 2010). Only a few things out of those trig- simplify to approach the but end, the in law into put proposals were actually public discussion in Germany (Rixen, 2010). gered a large Kirchhof (2010), for example, has argued for years for a simplification of the Ger the of simplification a for years for argued has example, for (2010), Kirchhof Effectively, Germany has a taxation system that has progressive tendencies and progressive tendencies system that has a taxation Germany has Effectively, high and complex rather is system the but inequality, income reduces already thus has (2015) Schweiger 2006). Steiner, and Corneo (Bach, costs administrative in inequalities of limiting and the argument argument the ability-to-pay emphasized should citizen every that idea the is argument ability-to-pay The taxes. flat against respect should taxation the that means which overburdening, not is that tax a pay their in income monthly of their share higher a invest to citizens of poorer need the for the idea is an intrinsic inequality Limiting citizens. than richer costs of living and poverty their from emerge to poorest the enable to tries which state, social 2015). (Schweiger, share of their income thus needs the richest to pay a higher that a progressive tax could be might lead to the outcome Both of these arguments seen as closer to a just taxation system than thesea are flat-tax system. However, of justice remains subjective. and the personal perception only two arguments, tax flat the that systems different many so to led have differences perceptual These as important is example the paper this for but 2008), (Nerré, many of one only is system. simple of a effectiveness and purpose, advantages the clarify to help can it In Germany, one basic tendency that dominated the taxation debate over the last over debate the taxation dominated that basic tendency one In Germany, in 1992. Court Constitutional by the German Federal few decades was mentioned The basis for tax estimations should not just reflect income, but it of the in the economy and the existential needs situation the momentary recognize should also - a study from 2010, most German tax According to 87, 153). (BVerfGE citizens The important question remains of a progressive tax anyway. payers are in favour Heinemann, 2010). such a system (Hennighausen and how to design and justify theory of positional externalities, which claims that people with higher incomes incomes higher people with that claims which externalities, of positional theory that houses or larger cars luxury art, goods, like positional on money more spend would These investments prestige. for except a lot of utility do not provide money into an investment of the and would enable a progressive tax decrease with 2016). (Krueger and Ludwig, public goods - - THE THEORETICAL MODEL OF THE SIMPLE PROGRESSIVE TAX THE SIMPLE PROGRESSIVE OF MODEL THEORETICAL THE 3.1 which consists of two adapta mechanism, taxation Our paper presents a simple tions of one formula. The objective is to create a system that is easily understand- is to create The objective tions of one formula. increasing income the formula creates With able and fast to apply for all citizens. income marginal surpasses the never rate tax marginal The rate. tax increasing an particular this In more. earn to individual the for beneficial always hence is It gain. for; is accounted source, of its regardless income, all tax, income of an design and income income gifts, labour subsidies, transfers, inheritance, includes it hence gifts that point The activity. entrepreneurial and interests investment, capital from the incen design is that it limits in this particular are also included and inheritance This all later. but this issue will be discussed in detail behaviour, tives for strategic number and easy to control. general a rather the income makes approach including and gift taxa- inheritance is not the highest priority, In systems where simplicity inheritance an to SPT the of An adaptation income. from excluded be could tion Such calculate. easy to tax system is easily possible and could hence be similarly few very are there as simple, and flexible system the make possibilities adaptation 3 THEORETICAL PROPOSAL FOR A SIMPLE PROGRESSIVE TAXATION TAXATION PROGRESSIVE SIMPLE A FOR PROPOSAL THEORETICAL 3 The simplification aspects of the concept presented step one simplification the move could in SPT but Kirchhof, of thisthose to ideas similar paper are based on An to only two. number of taxes the be able to minimize as it would further, alterations some small tax, with as a corporate also be used could tax that income formula, be built on the same tax, which would sales A design. from the original taxes Other appropriate. system the make to different be to have indicators the but like taxes on tobacco or to trigger behavioural incentives, that are implemented of through the interest in this analysis, as they are created sugar are not considered implemented actually not are and else something or security public health, public finance the public administration. for the pure need to resolve to which is able tax as an income system only presents the This paper several current conflicts regarding income inequality and regardingin designed be can we present system The the conse- systems. taxation of complex quences but it does not have to be so in this paper, to the design presented a way similar thought further for inspiration an all of first is formula The designed. or interpreted of the taxation system the administration and its design is intended to facilitate for the country applying it. and to facilitate an individual optimization points of relevant and a tax system is always one of the most direct Additionally, of a picture The of its citizens. lives day-to-day and the a state between contact by a com- is strongly supported administration public and wasteful bureaucratic and formula which is understandable A plex and even confusing taxation system. positive a more to give be able hand, might other on the everyone, for calculable between proximity closer show a to able be might it and taxpayers, the to image but that is only an untested and the citizens, the administration the government, the future. hypothesis that we would like to test in

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149 43 (2) 141-165 (2019) - - (1)

= use formula (4) ¯ x ≥ 1.66 if The indicators of 30 and of 1.4 are exemplified numbers. They can be changed flexibly to increase or decrease the progressivity and the average tax rate accord- Nevertheless, entity. or state implementing the wishes of and needs the to ing have to be carefully of this formula level these values and the possible maximal without limit mathematical to a clean lead they so that one another to levelled The value of 1.4 is used to lower the progres- within the system. distorting effects If the indicator share of the population. sivity and spread the curve over a larger Personal income in this case, as mentioned, includes capital income, gifts, inherit gifts, income, capital includes as mentioned, case, this in income Personal in that time accruing to the individual ance and, generally speaking, all income the as defined is income personal the follow that sections empirical the For period. be hence can variable The is calculated. rate tax current upon which the income freely defined, but the simplicity and thedistributional effects that the formula is personal with an all-inclusive strongly achieved are most supposed to trigger income definition. One-time incomes, such as gifts or inheritances and their fair variable donations, are discussed below. accounting in the formula, as well as the year, past of the income average societal the variable, main denominators’ The years when the in the transitional especially challenge, an administrative implies of the past year as the average tax payment concept is not yet fully established, that fast. If that is the case the average should be be calculated cannot necessarily calculated by the last year where the full data is available multiplied by the infla- the current year. tion rates that occurred between that and

Basing the formula on the societal average income eases the individual’s and soci- and individual’s the eases income average societal on the formula the Basing of the entire the income of to the development them shifts by relating income etal develop- income market-based and inflation includes automatically also It society. This means that, if an employee payments. taxation ments in every taxpayer’s works income receives an income below the average in a labour market and The main model year. to pay lower taxes in the following increase, she or he has that every taxpayer This is the formula which is the baseline. follows formula (1), per the include needs to only taxpayer The or himself. for her- calculate has to exceptions and no entrance borders or layers. All people generating income within within income people generating All or layers. borders no entrance and exceptions the country pay income taxes, beginning from the first euro, while keeping the of the individual. to the capabilities of the tax adapted distribution sonal income and the personal volume of donations, while the societal average average societal the while donations, of volume personal the and income sonal is also designed The system is published by a public entity. income of the past year income, additional of the volume never surpasses the rate tax the a way that such in case – which is not necessarily in every more income income equals more so that taxation system. the case in every progressive - - - (2) (3) are example selec are example 1 and Y

0 Y

are the personal incomes of two the personal incomes are 1

and Y

0 Y is the Average Tax Rate, Tax Average is the R AT were closer to one, the steeper the progression would begin at lower income levels income at lower would begin progression the the steeper closer to one, were (4). formula by the be limited the cut would earlier and the rate that lies an average tax been chosen to create factor of 30 has The impact rate is average tax as the resulting in Germany, real average tax rate close to a the pro- determine These two indicators of 30/1.4. cent, i.e. the result 21.43 per are always They the society. tax rate of average well as the effective gression as of the change A together. adapted on another and need to be strongly depending the of 32.14, if rate tax average an in result 45 would 30 to from factor rate tax were changed If the progression indicator were not adapted. progression indicator exactly produces 21.43, which would be rate tax average resulting the 2.0998 to of for the combination The same accounts (1). formula the same results under combina via multiple tax rate can also be achieved The same average 21.43/1. which means that the mathemati in any way, The indicators can be chosen tions. as the other extreme. or one hundred per cent can be zero of the tax rate average cal progression to to steer the stronger entity allow the implementing The indicators (4) is (1). Formula of formula range the progression within or later an earlier into play as it indicator comes employed, the real function of the progression as would be is steeper, a progression that to create state allows the implementing the case with the example of 21.43/1 or flattershown, based on the LIS dataset This claim is mathematically as45/2.0998 indicator. would be the case with the of Musgrave and progression measure the to According 2007. in for Germany high- the has combination indicator 21.43/1 the 1948) Thin, and (Musgrave Thin Rate of Progression (ARP). Average est It is calculated as follows: high income individuals and T are the tax liabilities. and high income individuals

where tions, in order to show the progression under formula II (eq. 4). The incomes The II (eq. 4). progression under formula show the to order in tions, groups, in order to ensure the use of highest income only have to be in the hence formula II. results in lowest progression indicator the show that 1 clearly The results in table the strongest progression within the range of formula (4).

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151 43 (2) 141-165 (2019) - (4)

0.01 0.49 0.50 37,683 83,602 76,809 165,850 45/2.0998 , which equals a ¯ becomes the tax rate for rate tax the becomes y max: taxrate=55 ¯ 0.02 0.50 0.52 38,460 86,395 76,809 30/1.4 165,850 max: x=6.66 ¯; 0.02 0.51 0.54 39,510 90,002 76,809 21.43/1 165,850 (4) min: x=1.66 For formula ) ) 0 1 1 ) ) 0 1 0 1 able T(Y (Y ATR Y Y T(Y ATR (Y ATR ARP tax rate of 50 per cent, formula (4) comes into play, and play, into (4) comes formula per cent, of 50 rate tax The dif- of formula (1). nothing but a small adaptation person. Formula (4) is that - pro The formula. of the term second is the two formulas these between ference in (1), which is made to show gressivity of (4) is much smaller than that that this the to diversify span and hence to spread over a longer rate tax the enables formula progressivity of the tax rate to a wider spectrum of the population. In the example that this paper uses to show the possibilities of the formula the tax the formula the of possibilities show the uses to paper this that example the In rate, calculated with the first formula (1), is artificially limited to a spread from 0 per cent to up to 50 per cent. This artificial limit is implemented through the rule 1.66 ≥ a value that is x that if the tax rate of any taxpayer reaches Hence the purpose of the indicators 1.4 and 30 is to determine the tax rate and the and the the tax rate 1.4 and 30 is to determine Hence the purpose of the indicators and rate tax the in increase for a smoother responsible also are They progression. to income groups occurs, thus a system that is fair of certain that no over-taxation all citizens. The indicators also have to be calculated accordingly with the maximal level of x level with the maximal accordingly The indicators also have to be calculated only to wealth applies that formula (4), the to transition a swift and fair to enable with each other and the beginning are not matched ier taxpayers. If the indicators end up another might than gross more earning (4), a taxpayer for formula income a just development. earning less net, which is under no circumstances The influence of the indicators is hence multileveled and allows the implementing the allows and multileveled hence is indicators the of influence The is sup- system that taxation design of the the within broad freedom rather a entity posed to be implemented. Source: LIS 2007 Data for Germany. Source: own calculation. Notes: authors’ T of progression rate Average - x of was as it adds chosen, ¯ that demands the use of formula (4). the use of formula x that demands of level the minimal , which is ¯ Formula (4) is exemplified here for the purpose of showing the possibility of imple- of possibility the showing of purpose the for here exemplified is (4) Formula and of showing share of the population over a large slow progressivity menting a an over burdening the levels where formula (1) produces that fair tax rates above exponential design of formula (1) leads to an almost The progression are possible. this is the case in most tax rate above that line, at least increase for the individual increase in a tax Formula (4) hence shows how a further adaptations of the design. lower per (4) could obviously also work in Formula SPT. rate could work under The tax rates here vary between 50 per cent and 55 per cent, 55 per cent being the per cent being cent, 55 and 55 per per cent 50 vary between rates here The tax is why This 48.33 indicator the possible. percentage highest minimal It adds up with a cent tax rate. to the line of a 50-per up perfectly 1.66 applicable to an entire its progressivity is too slow to really be centage tax rates, but citizens, a stronger progressivity that frees low-income Formula (1) creates society. the tax rate is from higher tax burdens, as in the society, especially the weakest beneath thatlies income a person’s If society. the income of bound to the average If the income is higher than or equal to 21.43 per cent taxes. line, he/she pays less This uneven number 21.43 per cent taxes. than the average, he/she pays more than which is created to keep the steepest areasis a product of the design of the formula, formula (4) substitutes for formula (1).of the progressivity above the line where income is based on the arithmetic median,The calculation of the societal average and it is more inclusive of the society, as this simple method includes the outliers for the tax- The additional upside average. than other calculations of the society’s a higher societal average is calculated.payer is that due to the high-income outliers, in comparison to a tax rate based on theThis decreases the tax rate for all taxpayers average. Calculating formula (4) is onlymedian or other means to calculate the that there It has to be said receivers in the society. necessary for the higher-income The transition between the two formulas. is one weaker aspect regarding these two formula (1) is higher than theThe progressivity of formulas cannot be perfect. that someone who earns slightly lessprogressivity of formula (4), and that means in tax rate on the next additional eurothan the split has to endure a higher increase line, as the progressivity decreases. How- than someone who is slightly above the payment is always higher for the real tax rate and the actual tax to clarify, just ever, The issue between size of their income. the person earning more, regardless of the and design of the formulas, but it can- the formulas is minimized by the positioning could be ignored, but in the spiritThe impact is rather small and not be eliminated. these aspects should be mentioned. of transparency, that note to is important it or inheritance, gifts like incomes, one-time Regarding should be The tax payment over the years. and spreadable they are dividable 25 to up of period maximum a over fashion distributed equally an in spreadable, years to enable a Thesufficient allowed protection period of depends the on heir. gap wider the The income. average and yearly inheritance gap between the the longer the or gift, inheritance the higher the hence is and two these between payment tax of the spread maximal the of thumb, rule As a of distribution. period

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153 43 (2) 141-165 (2019) - - - - for inheritances or gifts should be distributed over one additional year per an per an year one additional over distributed should be or gifts for inheritances income an averaged over total income, of the points percentage of ten increase gam- eliminate to inflation include to need calculations These years. five of period The tax authorities not a problem. is payment an earlier In this way, ing behaviour. taxa years. Every over the income to spread the for permission to be asked have If the system was planned to be implemented for companies, as well, the limit for limit the as well, for companies, to be implemented system was planned If the influ- questionable the to due them for lower be to have would deduction donation liberal has (CSR) (Dahlsrud, 2008). Strict responsibility social corporate that ence theoreticians argued that profit was the only social responsibility of companies as they disagree, to seem administrations almost all today 1970), but (Friedman, Companies rules to nurture CSR expenditures (Commission, 2013). implement as a form of market and use it taxes circumvent can they CSR also because like The system also minimizes the conflict of interest in the case of donations. Dona- donations. of case the in interest of conflict the minimizes also system The estimation the from deductible are entities charitable recognised publicly to tions base, which leads to the effect that a wealthier income taxpayer is able to profit to ability relative The taxpayer. to a weaker in comparison disproportionally is income of the share higher as a of income, increase the with increases donate for donations is the exception not used for expenses of daily life. Nevertheless, a more active as donations enable impacts, distorting regardless of its important a more socially not only enable The supported entities society. and potent civil but of a society, life for the crucial them system, which makes and active engaged cover. to obliged would be state the otherwise on tasks that take to are able they the and limit for the state the expenditures to limit are thus able These entities all-surrounding state that has a potentially They also limit necessary tax income. num- cover the unlimited entities as no private life, to occupy every inch of social ber of socially, culturally or economically important aspects. To find level of dona- of a maximum ground between these two aspects, a compromise a shared basis of the tax formula is the estimation tions that is allowed to be deducted from dona- all enable to enough high is percentage This income. yearly the of per cent 5 not be endangered. tions, and the creation of foundations should tion system triggers particular incentives, and this system prides itself on trigger this system prides and incentives, triggers particular tion system is a sys- It simplicity. through its behaviour for gaming few incentives ing rather basis, mathematic which ensures subjects everybody to the same easy tem that account, into be taken needs cannot but individual fairness and equality, systemic important one Nevertheless, guaranteed. be cannot fairness absolute hence and gifts and inheritances larger that effect is the trigger can system the that incentive and in smaller portions, so are given or sold earlier for the that a higher tax rate as acceptable, as seen is process This circumvented. is gift the of benefiter or heir it fulfils the purpose of the distributive effect of the tax system. The income loss gener is flow income earlier and continuous more a as acceptable, is state the for and actively more to be shifted have fortunes private that fact the through ated the taxpayers. of saving for really enable an effect adequately in time to and shows public likes it as it makes brands more approachable that a The ing. is the first (LWS). The (LWS). Luxembourg Wealth Study Database Wealth Luxembourg cent or more taxes. Two additional tables that show the Estonian show the that tables additional Two taxes. more or cent per

5 EMPIRICAL COMPARISON 5 EMPIRICAL and years. for both countries payable tax volume show the tables following The The data presented here intends to illustrate the and progressivity, it exemplifies for (4)” is of “Cut section small The under SPT. rate tax of the development the (4), of formula application the triggers that line imaginary show the to introduced pay to have is who actually of people percentage the shows how small it and 50 third source of our data is a report by the German (DeStatis, 2015). about data from 2011 statistical office from 2015 col- microdata of harmonised database income available largest is the LIS The the LWS world, while around the from about 50 countries from lected on assets and variables includes and existence in database wealth cross-national labour-market household characteristics, income, government and market debt, and behavioural indicators. outcomes and, in some datasets, expenditures which in is the “gross household income”, The main variable we are interested private property and social or payments from labour, monetary includes the total goods and services of non-monetary transfers. It also includes the total value social transfers, transfers, excluding social or private from labour and received ben- cash near and benefits education universal insurance, health universal as such efits from public housing. distinc- any without workers all for values use we concept, the of step first this In for values the convert to proceed We workers. part-time or full-time between tion - was not yet in the Euro in 2007 and 2010 Estonia into euros, given that Estonia pean Monetary Union System. information any contain not does dataset this that underline to like also would We for “donation” factor the impact This aspect forced us to ignore about donations. but it does not The aspect is important, chapters. in the following our examples for the ignored be hence can and formula of the mechanism underlying the change purpose of the examples. 4 DATA form Study data Income Luxembourg we used values from the For our exercise, to and research centre dedicated 2010. LIS is a data archive of the years 2007 and Income Luxembourg the two databases: analysis, and it released cross-national (LIS) and the Study Database company cares. The last player in this equation is the state, which, in the cases of cases in the which, state, is the in this equation player last The cares. company - 2002; Commis Kramer, and (Porter CSR activities supports and Germany, Italy nurturing, worth this is an aspect that seem to agree players Thus, all sion, 2013). sup- were it if even formula the within remain would donations why the is which as well. used for companies, posed to be

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155 43 (2) 141-165 (2019) 50.10 50.58 Tax rate Tax Tax rate Tax 3.09 5.71 7.39 2.90 5.89 7.60 21.43 35.30 50.00 52.27 12.25 67.37 12.17 21.43 36.42 50.00 54.7268.24 50.16 50.61

x Formula I Formula II x Formula I Formula II 0.20 0.40 0.71 1.21 1.67 1.82 2.27 3.62 108.64 51.95 0.10 0.25 0.10 0.19 0.25 0.41 0.71 1.18 1.67 1.74 2.25 3.76 112.87 52.10 8.8 4.3 4.5 8.4 11.3 18.0 31.9 54.1 74.3 81.3 10.9 18.0 31.5 51.9 73.5 76.8 99.0

101.4 161.5

165.9 Germany Germany Income in Income in thousand € thousand € 3 2 able able 75 Cut for (4) 90 5 10 25 50 75 Cut for (4) 90 95 99 5 10 25 50 1 1 95 Quantile Quantile 99 2010 2007 Source: Luxembourg Income Survey (LIS), 2007. Luxembourg Source: calculation based on LIS. Notes: authors’ Simple progressive tax results Germany 2010 tax results Simple progressive T Source: Luxembourg Income Survey (LIS), 2007. Luxembourg Source: calculation based on LIS. Notes: authors’ T 2007 Germany results tax Simple progressive developments under the current system in 2007 and 2010 are in the appendix. appendix. are in the 2010 in 2007 and system current under the developments formulas. the two under progressions the different describe calculations These 50.22 50.35 50.72 50.98 Tax rate Tax rate Tax 1.60 5.51 6.45 1.79 5.68 8.02 11.09 21.43 40.32 50.00 60.51 10.71 21.43 37.87 50.00 56.86 79.50 71.53

x I Formula Formula II x I Formula Formula II 0.19 0.27 0.37 0.71 1.34 1.67 2.02 0.06 0.05 0.18 0.22 0.35 0.71 1.26 1.67 1.90 2.38 2.65 3.98 119.52 52.31 3.60 108.03 51.93 2.4 3.4 4.6 8.9 0.7 0.7 2.4 2.7 4.6 9.2 16.9 20.9 25.3

16.3 21.5 24.5

30.8 33.3 49.99 46.6

Estonia Estonia Income in Income in thousand € thousand € 5 4 able able 75 Cut for (4) 90 50 5 10 25 50 75 Cut for (4) 90 5 10 25 1 1 95 2010 95 Quantile Quantile 2007 99 99 The tables show that the maximum level of 55 per cent is not reached until the top the until reached is not cent 55 per of level maximum the that show tables The system produces a progression, as the also show that They 1 per cent of income. pay very with low income people The above. part descriptive in the mentioned of incomes. over the spectrum low taxes while the tax rates increase substantially to show the general they are able Even though these numbers are not too detailed, tendencies within a society and the general results of the formulas. got of Estonians per cent one richest the (4) show that of formula results The slightly richer between the year 2007 and 2010, while the “Cut for (4)” moved same period. that more taxpayers lost income in the down, which indicates Source: Luxembourg Income Survey (LIS), 2007. Luxembourg Source: calculation based on LIS. Notes: authors’ T Estonia 2010 tax results Simple progressive Source: Luxembourg Income Survey (LIS), 2007. Luxembourg Source: based on LIS. calculation Notes: authors’ T Estonia 2007 tax results progressive Simple

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157 43 (2) 141-165 (2019) are rather simple to are rather simple ¯ . The impact factor for formula factor impact The . ¯ . This impact factor and thus the 3.33 This impact . ¯ Table 6 shows what was expected. Most of the lower-income groups are paying groups are lower-income Most of the was expected. 6 shows what Table groups higher-income the while system, with the current than SPT less under the per is the group of taxpayers with an income What is interesting would pay more. would pay slightly more under These citizens year between 10,000 and 12,500€. solutions of the German and specialized exceptions the which shows that SPT, the in a universal Such special needs cannot be respected tax code have their effects. system, such as the SPT. Formula (4) came only into use for taxpayers in the groups above an income of Formula (4) came only into use for taxpayers and restriction, the maximum penetrated four groups The richest 175,000€ a year. to they were limited higher, even though their tax rates would be mathematically that of the fact can be seen with the help of this limit The importance 55 per cent. which is about 0.01 per cent of the popula- the highest earning group of Germans, high index is even more This incredibly tion, would have had an index of 258.98. impressive considering the slow progressivity of formula (4). (4) is hence now 3.33 It cent. is 50 per rate tax of x when the value the only represent as they calculate, average or the further if the progression is too steep the formula is easy to adapt tax level too high for the taste of somebody. For the sample presented in table 6, we adapted the indicators of the SPT. The SPT. of the indicators the 6, we adapted table in presented sample For the comparison more realistic the of making objective the made here have adaptations the second- changed We systems closer together. two progressive and bringing the means the indicator of the second step of formula (1) to 15, which ary indicator to 3.33 for (4)” was changed line of “Cut and the The comparison with the German data is a little bit more complex, and therefore therefore and complex, more bit little a is data German the with comparison The for 7 represents the same calculation Table it for the year 2011. table 6 summarizes the dif- shall help to understand tables These comparison for 2012. data Estonian examples The rules. different the systems and and tax tax volumes in the ferences are calculated as first insights and representations of the inner workings deeper empirical analysis will be needed in follow-up research. A of SPT. the The objective of these tables is also to enable an easy and obvious comparison to obvious comparison easy and an enable is also to tables of these objective The The Estonian flat tax makes such a the tax code in place in the particular country. and in 2010 was 21 per cent for every taxpayer rate as the tax simple, comparison at least, in 2015 and remains, percent dropped to 20 rate The 22 per cent in 2007. and Customs Board, 2019). Tax (Estonian until 2018 on that level However, regardless of such possible interpretations the tables show that the SPT SPT the that show tables the interpretations possible such of regardless However, taxpayers, most for level taxation different completely a provide indeed would of the 25 to 30 per cent The richest low. costs the administrative while keeping to 25 the poorest 20 their tax volume, while in would feel an increase taxpayers per cent would feel a significant taxThe relief. middle-income group of the soci- their tax rate. small change in only observe a rather ety would under SPT SPT under tax volume in million € Total group group Total real in real million € tax volume Total group group Total Taxvolume SPT Taxvolume % SPT in SPT Tax rate Tax result result SPT (1) SPT in Nr. of of Nr. Taxvolume Taxvolume real thousand taxpayers 0.8 25.88.8 0.01 160.1 0.21 0.15 2.18 60.4 78.2 0.045 30.7 Average Average group in group thousand € income per income per 1 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 raph able 5 0 0-2.5 2.5-5.05.0-7.57.5-10 10.-12.5 3.8 6.3 11.3 47.2 71.8 0.06 665.1 0.10 0.19 0.93 1.55 2.78 35.4 44.2 204.4 1.6 208.6 7.0 Income in group thousand € 12.5-1515-2020-2525-30 13.730-37.5 17.537.5-50 863.7 22.550-75 1,789.2 27.575-100 33.6 0.23 2,134.1100-125 43.3 0.29 2,333.1 3,148.9 0.37 3.39 60.6 85.7 0.45 4.32 110.9 3,737 0.55 5.56 495.2 3,818 0.71 6.79 2,220.2 1,531 8.30 4,013.5 657 0.99 10.69 1.41 11,898.9 402.6 6,093 1,352 1.83 14.97 2,667.3 21,890.6 21.17 8,783.9 27.39 4,355.6 38,271.8 17,291.6 26,260.2 16,703.8 34,625 27,776.1 19,952.9 45 40 35 30 25 20 15 10 Source: DeStatis dataset (2015). Source: T 2011 in comparison with the German tax code in SPT G in billion € volume per income group Taxation The public income of one group and hence their tax burden under the SPT only only SPT the under burden tax their hence and group of one income public The of with an income group population in the income surpasses system’s the current for the burden to a heavier only leads SPT the that which means 75,000-100,000€, thousand euros from 75 to 100 The group sections of the population. well earning Graph Germany. in earners top cent 15 per among the is already year per income results clearly. 1 shows these

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159 43 (2) 141-165 (2019) €** in million under SPT SPT under under SPT SPT under tax volume tax volume tax volume in million € in million Total group group Total Total group group Total 569.2 48.8 real in real real in real million € 201,549.1 231,407 tax volume Total group group Total million € ** tax volume tax volume Total group group Total

Tax Tax rate % SPT** SPT in SPT Tax rate Tax

SPT SPT result** formula result result SPT (1) SPT

in in Nr. of of Nr. Nr. of Nr. thousand taxpayers – in order to reflect a reasonably similar total tax volume. a reasonably to reflect – in order thousand taxpayers taxpayers ¯

0.62.54.7 68.89.3 47.0 128.0 176,925 0.04 0.14 0.53 0.26 0.53 2.11 3.96 7.90 473.0 1,289.2 1,782.2 0 12,967.2 2,364.3 245.7 0.2 15.521.9 79,83228.4 31,95441.7 14,092 0.8882.4 15,556 1.24 13.17 1.61 18.64 2,359 2.36 24.13 804.3 35.44 4.67 322.2 16,269.1 141.7 53.00 13,055.3 156.5 9,647.8 23.9 22,960.5 10,298.2 €* 480.8952.6 31 21 27.27 54.03 55.00 55.00 0.569 4.200 819.7 1.100 151.7222.3286.5 282350.5 61 8.61 30 12.61 55.00 22 16.25 55.00 19.88 55.00 2.8 55.00 0.569 0.569 2,353.,6 1.6 745.9 472.7 424.1 4,534.4 2 257.19 55.00 1.9 498.8 Average Average group in group thousand income per income per Average Average group in group thousand € income per per income 7 able

5,000- 12,887.6 1.4 212.31 55.00 5,459.8 9,888 2,500-5,000 3,408.8 2.6 56.16 55.00 2,924.7 4,788.4 1,000-2,500 1,463.4 12.2 24.11 55.00 6,339.8 9,829.8 500-1,000 668.2 37.7 11.01 55.00 8,977.1 13,870 375-500 428.8 38.7 7.06 53.73 5,685.9 8,923.9 250-375 299.3 114.4 4.93 51.60 11,147.5 17,668.1 175-250 205.5 230.3 3.38 50.05 14,160.7 23,677.8 125-175 145.1 486.2 2.39 35.86 18,583.7 25,306 Above 3,195.6 Total 255.7-320 320-383.5 383.5-639.1 639.1-3,195.6 63.9-127.8 127.8-191.7 191.7-255.7 19.2-25.6 25.6-32 32-63.9 3.2-6.4 6.4-12.8 12.8-19.2 0-1.7 1.7-3.2 Income in group thousand € Income Income in group thousand € Sources: based on Estonian Tax and Customs Board (2013). and Customs Board on Estonian Tax based Sources: distribution. * Estimation based on standard ** Estimation – if applicable: based on the same parameters as table 6. T 2012 in comparison with the Estonian tax code in SPT Sources: based on DeStatis dataset (2015). based on DeStatis dataset (2015). Sources: and 15 of multiplier rate tax donations; of exclusion the under calculation, own authors’ Notes: of 3.33 a societal tax multiplier ) the transition would transition ) the ¯ 6 DISCUSSION of the part the descriptive promise of in the keeps SPT that the show The tables examplesThese for themselves. data speak as the is not much to say, There paper. detailed analysis more A works. the system actually able to show that were only in will follow of the SPT societal consequences long-term results and about the the applications under the SPT, can be said is that One thing that future research. used in this first example, would shift the tax burden more intenselywould be achieved notincome. Decreasing income inequality citizens with more towards the in the data, but also by an aspect that was not represented only by progression, would not capital income as well as income and would observe because the SPT - would also decrease administra The SPT for those incomes. grant special conditions same extent in Estonia. Germany and would keep the level to the tive expenditures in transition from formula is the SPT point of the and most complicated weakest The point is only of interest for about of table 6 this the example (1) to formula (4). In example the calculated If we had 2015). (DeStatis, population of the two per cent 1.66 (30; examples we used for the other with the values have affected about 13 per cent of the society. In that case, the total tax revenue about 13 per cent of the society. have affected than euros more billion 130 euros and hence 360 billion about been would have shows also example The place. in system actual and the above design the under also example The all. at transition the by impacted are earners top only the that is smooth, transition The correctly. were adapted the indicators that emphasises in any case. and the impact on the taxpayers is minimized weakness of show another to were also able examples the is that is positive What taxpayers One group of low-income systems in general. tax simple or all the SPT The system. current under the than SPT under the pay more Germany has to in about individual, for the two systems is marginal the between difference payment The needs of one system. taxation 6.25€, but it shows of a complex the advantage The sim- which simple systems cannot provide. group can be respected, particular in injustice, as with an increase plicity of tax systems is sometimes associated One contra- is representable. individuality there are fewer exceptions and thus less information and hence is that there is no perfect issue for this statement dicting exceptions when the numerous utility marginal has a decreasing complexity that pay- tax less mean loopholes More loopholes. of system complex a to led have A bear. to have taxpayers all costs that administrative the increasing while ment, taxpayer can hence profit from the system as long as the necessary information is cannot respect simple system like the SPT A taxpayer. for that particular available by a complex problems or aspects – which could only be generated any individual algorithm. The SPT and simple systems like flat taxes can ensure that everybody as the possibil- her or his share of the tax burden without exceptions is shouldering ity of finding a loophole is eliminated by its simplicity. only affects rate, the rate of 55 per cent, The obligation to pay the highest taxation formula slow progression within the Hence society. of the cent per 0.2 richest the

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161 43 (2) 141-165 (2019) - - - Another advantage of the SPT is that the formula inherently adapts to the level of level adapts to the inherently is that the formula of the SPT Another advantage the larger is, inequality income the The larger a society. within inequality income of the tax rate limit The tax rate. and the highest between the lowest is the spread progres- the of spread a for allows (4) formula as politics, by determined only is hence a spread from 0.0 incomes of a society, spectrum of all sion across the entire society were perfectly hand, if a hypothetical other On the to 100 per cent. per cent the with would be taxed incomes high, all were equally incomes and all egalitarian provides the calculation, the average-based The same mechanism, same tax rate. levels, price in increases and inflation to automatically adapts system the that fact updated each year. automatically and is the same for all as the number remains Only an episode of hyperinflation would be problematic for the efficiency of this to maximum year would lead higher incomes in the current design, as the much but par any point in time, at target be the which cannot incomes, for all rates tax (4) continues until rather high incomes. The most positive and important aspect of of aspect and important positive most The incomes. high rather until (4) continues of progression strong rather the to ease possible it makes it is that (4) formula groups. in the higher income formula (1) It is also clear that a progressive taxation system would trigger negative exter system would trigger negative It is also clear that a progressive taxation the the results in more depth, especially these results and to investigate validate To further research with solid empir of the SPT, results of an introduction long-term for countries with a tax of it might be interesting or an adaptation The concept simple. rather would be too adaptation as the simple, rather is already that code of an inspi- be more might system this concept complex For countries with a more ration, as the simplification of the tax code goes along with many controversial The population and special interest groups would work hard to pre- discussions. vent the loss of particular benefits so that the process is rather complex and long- adapt easily rather could code tax simplified already an with countries but lasting, such a system in order to fight increasing income inequality or in order to follow approach towards simplicity than a flat tax. a different ticularly not in times of a hyperinflation. nalities and spill-over effects if the rest of the tax code were flow not A adapted. for a com- rate tax similar a with prevented to be funds needs towards corporate of this version could be provided with a slightly more complicated which pany, formula or another progressive system. an analysis of inheritance research should also include data is needed. Future ical paper was able to This based on the SPT. tax, value-added tax and cooperate tax of the concept. Nevertheless, demonstration and theoretical give an empirical for this used data the and methods the with answered be cannot that questions paper remain. Disclosure statement Disclosure by the authors. No potential conflict of interest was reported 7 CONCLUSION Simplifying the tax code while employing a flexible progressive tax system design of working is the it has shown that review literature the unusual, but rather is average societal yearly the using and formula one only of adaptations the with unique in comparison Tax Progressive Simple makes the that as a tax basis income systems. progressive taxation to the existing indicators. depending on the chosen slowly or rapidly, The tax rate can increase The tax rate can be limited to any level and even further simplified when stopped neededis formula no secondary (1), as formula rates of tax the over-progressive at can be adapted easily to multiple taxes. or a similar system The SPT in such a case. the citizens and the enable welfare gains, not only because Such a system would but they would money, save enormous amounts of time and administration would also gain confidence in their state, as an understandable taxation system should be stration. confidence in the government and its admini able to increase the This first introductory paper about the concept of the SPT has established that it organisational the providing while rate, tax produces a slow progression for the concept the of results the if show to have will research Future tax. flat a of benefits make life easier for concept can actually can hold up in the long-term and if the society and simplify its administration. the economically weaker members of the

public sector dirk-hinnerk fischer, simona ferraro: economics a proposal for a simple average-based progressive taxation system 43 (2) 141-165 (2019) 162 public sector dirk-hinnerk fischer, simona ferraro: economics a proposal for a simple average-based progressive taxation system

163 43 (2) 141-165 (2019) 0.7 2.4 4.3 8.7 3.4 4.6 9.0 4.9 11.3 18.0 31.9 16.9 54.1 25.3 81.3 33.3 49.9 12.1 41.3 39.3 12.3 10.4 101.4 161.5 1 5 1 5

10 10 25 25 50 50 75 75 90 90 95 95 99 99 S.D. S.D. 2010 2010 Mean Mean N. obs. N. obs. Percentiles Percentiles Gross household income in thousand € household Gross Gross household income in thousand € household income Gross 0.7 2.4 2.8 4.5 8.4 4.6 9.2 4.7 10.9 18.0 31.5 16.3 51.9 24.5 76.8 30.8 99.0 46.6 12.0 10.9 40.6 44.3 10.2 165.8 A2 A1

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