certain outcomes, such as financing, growth, and investment. Those arguments ought to
hold true across cases and time: for example, the need to attract FDI does not speak to
why a country would adopt that particular flat taxation regime, at the particular time
at which is was adopted. We would want a theory that predicts why governments picked
that particular flat tax tool rather than some other policy tool, such as eliminating sales
tax or setting other taxes higher. Thus, we will include the variables suggested by this
literature only as controls, and turn instead to political variables for greater illumination.
3.2 domestic political variables
First, government ideology seems a clear suspect for implementing the flat tax, an idea
that is the darling of classical liberals and fiscal conservatives - what would be considered
on the right end of the political spectrum in OECD countries. But political parties in
Eastern Europe are often difficult to categorize in broad left-right strokes; many espouse
a mix of different ideologies depending on the issue area. Indeed, at the time of adoption,
in almost all “flat” countries at least one party in the coalition espoused economic liberal
ideas (such as the Estonian Liberal Democratic Union or Serbian G17+) and/or there
was a drastic change of government from left to right (Georgia and Romania). In Russia
and Ukraine the incumbents and the parties supporting them in the parliaments were
hardly liberal, yet based on the policies they supported they were clearly on the economic
right. Thus, any empirical investigation must pay close attention to whether governmental
ideology can be defined by a left-right continuum.
We also expect that rapid changes in ideology — that is, when reform governments
come to power — would be associated with the adoption of flat tax regimes. Olson
(2000) discussed why certain economies grew quickly after major societal shocks such
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