western countries might follow the suit from the East, due to the obvious investment
attraction of its Eastern neighbors and the global competition for capital. There are
indications that Finland, Germany and Spain are currently discussing the flat tax idea.11
Additionally, there are indications that flat-tax domino effect is still at work in the East.12
Serious discussions are underway to implement a flat tax in Bulgaria, the Czech Republic,
and Poland.13 Across the border from “flat” Slovakia, the shadow finance minister of the
Czech Republic, Vlastimil Tlusty of the center-right Civic Democratic Party, has drawn
up plans for an integrated 15 percent flat tax on corporations and individuals, a reduction
from the current top rates of 29 percent and 31 percent respectively. According to former
Hungarian Prime Minister Viktor Orban, leader of the main conservative opposition party
FIDESZ, Budapest will have “no choice” but to jump on the “flat tax bandwagon” in order
to maintain the country’s competitiveness and retain a fair share of foreign investments.14
3 Economic and Political Arguments for Tax Reform
What factors influenced this diverse group of countries, across regions and income levels,
to adopt the flat tax? We turn now to three families of arguments on the adoption of the
flat tax, broadly divisible into categories of economics, both domestic and international;
domestic politics, including policy flexibility and government ideology; and diffusion,
focusing particularly on rational learning. It should be noted that these arguments are
11In fact, the flat tax trial balloon could have cost the CDU their expected margin of victory in the
2005 elections: Paul Kirchhof, a strong advocate of the flat tax who was suggested as a possible finance
minister by CDU/CSU, caused widespread controversy and had to leave politics.
12 “The Outlook for Tax Competition,” Andrew Quinlan, The Sovereign Individual, March 2005.
13Indeed, Poland could have become the 11th flat country had the outcome of a close election swung
the other way. During the 2005 electoral campaign, Civic Platform, a liberal-conservative opposition
party, advocated a 15 percent flat tax rate in order to catch up with Slovakia (which has a flat tax rate
of 19 percent), but lost the elections in a last-minute shift in the polls.
14 “Tax developments in the European Union since 2004 Enlargement.” Svetlana Menn, Tax Planning
International Review, November 2005.