Flatliners: Ideology and Rational Learning in the Diffusion of the Flat Tax



inflows in flat neighboring countries affects the probability of flat tax change for their
neighbors.

All flat tax policy changes not only radically simplified taxation and “flattened” the
rates, but also reduced taxes considerably: on average, flat countries impose 30.5 percent
of top marginal individual tax rate, while non-flat do 38 percent. Because we can estimate
the effects of spatial lag in OLS regression model, we specify model D as the OLS regres-
sion and use the same variables to predict individual tax rates. Parameters that reduce
tax rates should be associated with those increasing the probability of flat tax adoption.
The estimate of the spatial-lag coefficient in the base model is statistically significantly
positive. The spatial multiplier, (I - ρW)
-1 (Franzese & Hays 2006, 7-12) captures the
effects from one Eastern European country on others closest to it, from those — on their
neighboring countries, including back on that country. Multiplying (I - ρW)
-1 by a 20x1
column-vector with 0 in all rows except for example, Lithuania, which receives a 1, pro-
duces a 20x1 vector that contains the estimated effects of a unit-shock (1 percent change
in taxation) in Estonia on the other 19 countries in their rows. We estimated standard
errors via statistical simulation. The resulting matrix provides the estimated effects of a
unit-shock to country i on tax policies in the other 19 countries j.

[TABLE THREE ABOUT HERE]

Table 3 reports the short-run spatial effects of marginal individual tax rates in Eastern
Europe. The first number in each cell is the immediate effect of a unit-increase (1 percent)
in the column country’s top marginal individual tax rate on other Eastern European
nations (rows). The results suggest that a change in taxation levels in a “flat” country
leads to a reduction in taxation in other countries. For example, decrease in taxation in
Estonia brings about immediate tax changes in Latvia, Lithuania, Ukraine and Russia.

26



More intriguing information

1. The name is absent
2. Models of Cognition: Neurological possibility does not indicate neurological plausibility.
3. Healthy state, worried workers: North Carolina in the world economy
4. FUTURE TRADE RESEARCH AREAS THAT MATTER TO DEVELOPING COUNTRY POLICYMAKERS
5. The name is absent
6. An Investigation of transience upon mothers of primary-aged children and their school
7. The name is absent
8. The name is absent
9. The name is absent
10. Monetary Discretion, Pricing Complementarity and Dynamic Multiple Equilibria
11. The Impact of Optimal Tariffs and Taxes on Agglomeration
12. Reversal of Fortune: Macroeconomic Policy, International Finance, and Banking in Japan
13. Ahorro y crecimiento: alguna evidencia para la economía argentina, 1970-2004
14. Analyzing the Agricultural Trade Impacts of the Canada-Chile Free Trade Agreement
15. Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries
16. The name is absent
17. Large-N and Large-T Properties of Panel Data Estimators and the Hausman Test
18. A THEORETICAL FRAMEWORK FOR EVALUATING SOCIAL WELFARE EFFECTS OF NEW AGRICULTURAL TECHNOLOGY
19. Sustainability of economic development and governance patterns in water management - an overview on the reorganisation of public utilities in Campania, Italy, under EU Framework Directive in the field of water policy (2000/60/CE)
20. Hemmnisse für die Vernetzungen von Wissenschaft und Wirtschaft abbauen