not mutually exclusive, and many studies use similar variables to explain taxation levels,
if not tax reform per se.
3.1 International and Domestic Economic Arguments
There has been little empirical work on the determinants of flat tax adoption, largely
because so few countries have adopted this form of taxation regime. Most scholarly
work has focused instead on whether such a tax would offer gains to an economy in
practice (Weisbach, 2000). Within the broader literature on the political economy of
taxation, researchers have tended to find influence of domestic budgetary concerns as
well as international competition. On the domestic side, countries with a high level of
government spending will need relatively high levels of taxation to offset that debt. That
government debt is a result of multiple pressures from the economy, including structural
unemployment and an ageing population that is out of the workforce (Kormendi, 1983;
Webb, 1985; Frenkel & Razin, 1985; Cukierman & Meltzer, 1988; Alesina & Tabellini,
1990; Swank & Steinmo, 2002; Swank, 2002). A country’s competitiveness internationally
also matters, both directly, as will be discussed below in the section on diffusion. Openness
to trade and capital may increase the incentives of a country to develop a low taxation
regime, to increase the competitiveness of their exporting sectors (Garrett & Mitchell,
2001). There is certainly reason to believe that taxes as a source of revenue were a concern
in Eastern Europe: in the Western Newly Independent States, for example, the shrinking
of the traditional tax bases and the problems in collecting taxes, added with the rise of
the black-market economy (Hemming, Cheasty, & Lahiri, 1995).
There is, however, a problem in applying these arguments wholesale to the case of
flat-tax adoption. They deal primarily with how different levels of taxation ought to affect