as wars or revolutions. Major shocks, he argued, broke up powerful vested interests
that had previously blocked change, allowing new leaders to come to the fore. This
would help explain why Slovakia, Serbia and Georgia, and to a large extent, Romania,
which experienced drastic government changes in the late 1990s and early 2000s, were
more quick to jump on tax reform than were, say, Hungary or the Czech Republic. The
strength of the center-right after the toppling of the autocratic regimes of Vladimir Meciar,
Slobodan Milosevic, and Eduard Shevardnadze had freer reign for policy experimentation,
once the way was already paved by the Baltic countries (though Slovakia took some
time to implement reforms due to the instability of the governing coalition). These
countries thus were able to skip intermediary reform stages and could implement radical
tax reforms, hereby overtaking more advanced economies with many vested interests.
Thus, policymakers may have viewed the flat-tax reform as a strong and visible signal of
a country’s investor-friendly “type.”
Because of the very highly visible and widely discussed flat-tax adoption in Estonia,
a country that proved the most successful economy in Eastern Europe, if not Europe as
a whole — in 2005 it ranked 12th most economically free in the world by the Heritage
Foundation’s Index of Economic Freedom, and first in Eastern Europe — other countries,
especially those with new liberal governments that needed to make for the lost years under
previous governments, saw flat-tax adoption as a shortcut, or a signal. Because of the
flat tax policy’s strong association with economic liberalism and the Estonian economic
success, transition under-achievers used the flat tax to project their new reform-oriented
and liberal credentials, regardless of whether the flat tax would ultimately prove a success.
It could also be argued that if other economic policy changes such as privatization
and price liberalization were enacted at the same time as the flat tax, it might indicate a
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